Current SEC Order Reiterates Want for Affirmative Whistleblower Exclusion | Seyfarth Shaw

SEC whistleblower Everybody usually agrees that individuals and organizations ought to be capable of defend their proprietary and invaluable info. However one space the place we have seen legislative fretting is when that precept probably impedes reporting wrongdoing to the federal government. As we have now beforehand blogged, Congress and plenty of state legislatures are exploring (or, in some circumstances, already enacted) legislative protections for reporting suspected misconduct to the federal government. And, on the federal stage, Congress enacted the Defend Commerce Secrets and techniques Act, which supplies immunity for the disclosure of a commerce secret if made in confidence to an legal professional or authorities official for the aim of investigating a suspected violation of legislation.

The Securities and Alternate Fee (“SEC”), which is understandably bullish on whistleblower protections, has additionally enacted laws to additional assist whistleblowers. The SEC promulgated a rule—Alternate Act Rule 21F-17(a)—that prohibits any particular person from taking any motion to forestall a person from contacting the SEC on to report a attainable securities legislation. Particularly, the rule supplies that “[n]o particular person might take any motion to impede a person from speaking immediately with the Fee employees a couple of attainable securities legislation violation, together with implementing, or threatening to implement, a confidentiality settlement . . . with respect to such communications.”

Since 2015, the SEC has introduced no less than 14 enforcement actions involving Alternate Rule 21F-17(a). And a latest consent order with The Brink’s Firm (“Brinks”) serves as a reminder that overbroad non-disclosure language may end up in regulatory motion. The motion arose as a result of, between April 2015 and April 2019, Brinks used an worker confidentiality settlement that prohibit workers from disclosing confidential firm info to any third occasion with out Brinks’ prior written approval. The settlement’s non-disclosure restriction didn’t carve out communications to authorities officers to report a violation of legislation which, within the SEC’s view, impeded potential whistleblowers. To resolve the investigation, Brinks agreed to:

  • Pay $400,000 as a civil financial penalty;
  • Stop and desist from any additional violations of Alternate Rule 21F-17(a);
  • Insert the next language into its non-disclosure agreements:
    Protected Rights. Worker understands that nothing contained on this Settlement limits Worker’s capability to file a cost or grievance with the Securities and Alternate Fee, or some other federal, state, or native governmental regulatory or legislation enforcement company (“Authorities Businesses”). Worker additional understands that nothing on this Settlement limits Worker’s capability to speak with any Authorities Businesses or in any other case take part in or absolutely cooperate with any investigation or continuing that could be performed by any Authorities Company, together with offering paperwork or different info, with out discover to or approval from the Firm. Worker can present confidential info to Authorities Businesses with out danger of being held liable by Brinks for liquidated damages or different monetary penalties. This Settlement additionally doesn’t restrict Worker’s proper to obtain an award for info supplied to any Authorities Businesses.”; and
  • Make cheap efforts to offer present and former workers with a replica of the order and an announcement Brinks permits present or former workers to: (1) present info and/or paperwork to, and/or talk with, Fee employees with out discover to or approval from the Firm; and (2) settle for a whistleblower award from the Fee pursuant to Part 21F of the Alternate Act.

In a individually issued assertion, SEC Commissioner Hester Peirce expressed that, whereas she accepted of the settlement phrases, she doubted that the SEC may, by means of an enforcement motion, require an organization to exclude from its scope any disclosure to any authorities company reasonably than restrict the exclusion to the SEC.


It isn’t sufficient to easily decline to implement a confidentiality restriction in a disclosure to a authorities official. Moderately, to adjust to Alternate Act Rule 21F-17(a), any confidentiality restriction ought to embody an affirmative assertion that nothing within the settlement restricts the signatory’s capability to reveal info to or talk with authorities companies for the aim of reporting a suspected violation of legislation.

Moreover, firms shouldn’t suppose that discretion in implementing overbroad confidentiality restrictions will forestall a possible motion by the SEC. In two prior consent orders towards KBR and Guggenheim Securities, the consent orders particularly famous that the SEC was unaware of any cases the place both (1) an worker was prevented from talking with an SEC official due to the settlement; or (2) the corporate took motion to implement the settlement towards an worker in reference to a communication to the SEC.

Lastly, the SEC believes its prior enforcement exercise has been ample to place firms on discover of its place and what language is required to adjust to Alternate Rule 21-17(a). Within the Brinks consent order, the SEC flagged that a number of in-house attorneys acquired consumer alerts and case summaries from its outdoors counsel—however Brinks did not revise its settlement to incorporate an appropriate carve-out for disclosures to the federal government. This seemingly signifies that, in future actions, the SEC will search larger financial penalties or extra intensive injunctive aid to implement Alternate Rule 21-17(a).