Firm’s Employee Confidentiality Agreement Violated Whistleblower Law
The SEC sanctioned and fined a public company for requiring employees to sign a confidentiality agreement that prohibits reporting violations of securities laws to the SEC without prior approval of the firm’s legal department. The SEC charges that such a provision violates Dodd-Frank’s whistleblower provisions. Andrew J. Ceresney, Director of the SEC’s Division of Enforcement, said “SEC rules prohibit employers from taking measures through confidentiality, employment, severance, or other type of agreements that may silence potential whistleblowers before they can reach out to the SEC. We will vigorously enforce this provision.” The SEC noted that “it was unaware” of the firm actually enforcing the provision to prevent a whistleblower.
OUR TAKE: Intent or effect is not relevant to whether a firm violates Dodd-Frank’s whistleblower provisions. According to the SEC, a firm steps over the line with any action or document that has the potential of chilling a whistleblower.