4th Company in 5 Months Punished for Chilling Whistleblowers

As an
SEC whistleblower lawyer, prospective clients often ask me whether terms in their
companies’ severance agreements or confidentiality agreements
prevent them from reporting frauds to the Securities and
Exchange Commission.  According to the SEC, the answer is
“no”.

The SEC has been vigorously pursuing companies that put
clauses in agreements designed to chill employees from blowing
the whistle.  Just yesterday, the SEC brought its fourth case
in five months against a company for trying to do this.

Cases Discussed In My Prior SEC Whistleblower Lawyer Posts

In September, the SEC imposed sanctions on
Anheuser-Busch
for using severance agreements that attempted to chill former
employees from providing information to the SEC.  The
agreement contained a liquidated damages clause.  That clause
required the former employee to pay $250,000 to the company
for a breach of the severance agreement.  One former employee
who was working with the SEC actually stopped blowing the
whistle out of fear of this provision in the severance
agreement.

The SEC said that the severance agreement violated SEC Rule
21F-17(a).  Among other things, the SEC forced the company to
pay more than $6 million in disgorgement, penalties, and
interest for both its severance agreements and the substantive
violations it committed.

In August, the SEC punished two companies for putting terms in
their separation agreements to chill their former employees
from reporting to the SEC.  Those companies were Health Net
and BlueLinx.

The terms in both companies’ agreements required departing
employees to waive their rights to receive SEC whistleblower
awards.  Among other things, the SEC imposed a penalty of
$340,000 on
Health Net.  It imposed a penalty of $265,000 on
BlueLinx.

Last year, the SEC punished
KBR
for imposing confidentiality agreements on its employees that
prevented them from telling the SEC about the substance of
internal interviews.  The SEC fined KBR $130,000, among other
things.

NeuStar: The SEC Isn’t Fooled By A Twist

NeuStar’s severance agreements had a different twist than the
ones in the cases discussed above.  NeuStar put a
“Nondisparagement” clause in its severance agreements.

The clause said that employees could not have any
communication that “disparages, denigrates, maligns or impugns
NeuStar or its officers, directors” and a whole host of other
people.  It then had a big list of people and entities who the
employee could not have such communications with.  That list
referred to regulators “including but not limited to the
Securities and Exchange Commission”.

If the employee breached that clause, he or she would forfeit
all but $100 of any severance compensation that he/she had
been paid.

The SEC did not find any evidence that NeuStar tried to
enforce the Nondisparagement clause.  But it did find that at
least one former employee “was impeded by the Nondisparagement
Clause from communicating with the Commission”.

In an
Order
dated yesterday, the SEC imposed sanctions against NeuStar. 
Among other things, the Order imposed a $180,000 penalty
against NeuStar.

Comments by SEC Officials on NeuStar

The SEC also issued a
press release
about the NeuStar case yesterday.  It contains comments that
may be of interest, whether you are an SEC whistleblower or
SEC whistleblower lawyer.

The press release quotes the Associate Director of the SEC’s
Enforcement Division as stating: “Public companies cannot use
severance agreements to impede whistleblowers from
communicating with the SEC about a possible securities law
violation”.

Also in the press release, the Chief of the SEC’s Office of
the Whistleblower expressed “our ongoing commitment to
ensuring that potential whistleblowers can freely communicate
with the SEC about possible securities law violations.”

* * *

About the Pickholz Law Offices LLC

The Pickholz Law Offices LLC is a law firm that focuses on
representing clients involved with investigations conducted by
the U.S. Securities and Exchange Commission, FINRA, and other
securities regulators.

The Pickholz Law Offices has represented employees, officers,
and others in SEC whistleblower cases involving financial
institutions and public companies listed in the Fortune Top
10, Top 20, Top 50, Top 100, Top 500, and the Forbes Global
2000. We were the first law firm ever to win an SEC
whistleblower award for a client on appeal to the full
Commission in Washington. Inside Counsel magazine named this
achievement one of the five key events of the SEC
whistleblower program. Examples of the
Firm’s SEC whistleblower cases are available here.

In addition to representing SEC whistleblowers, since 1995 the
Firm’s founder, Jason R. Pickholz, has also represented many
clients in securities enforcement investigations conducted by
the SEC, FINRA, the U.S. Department of Justice and US
Attorney’s Offices, State authorities, and more. Examples of
some of the many
securities enforcement cases that Mr. Pickholz has been
involved with are available here.

You can see what actual clients have had to say about The
Pickholz Law Offices by going to the
Client Reviews page on our website or by clicking here.

How to Contact the Pickholz Law Offices LLC

If you would like to speak with a securities lawyer or SEC
whistleblower attorney, please feel free to call Jason R.
Pickholz at 347-746-1222.

The Pickholz Law Offices remains open and will be fully
operational through teleworking while we all grapple with this
terrible pandemic. We hope that all of our clients,
colleagues, friends, and their families remain safe and
healthy. Our thoughts and prayers go out to everyone who has
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