Company Sanctioned for Requiring Employees to Waive their
Rights to Receive SEC Whistleblower Awards

Earlier today, the SEC imposed sanctions against a public
company for imposing restrictions in its severance agreements
that impeded its former employees from reporting potential
securities violations to the SEC and forced them to
waive their rights to receive SEC whistleblower awards.

The current Acting Chief of the SEC’s Office of the
Whistleblower
unambiguously declared:  “Companies simply cannot undercut a key tenet of our
whistleblower program by requiring employees to forego
potential whistleblower awards in order to receive their
severance.”  The Deputy Director of the SEC’s Enforcement
Division
confirmed
that “We’re continuing to stand up for whistleblowers.”

In a
Cease-and-Desist Order
noteworthy for its aggressiveness, the SEC required the
company, BlueLinx Holdings, to:

1. Pay a civil monetary penalty of $265,000
2. Add the following provision to its severance agreements:

   Employee understands that nothing contained in this
   Agreement limits Employee’s ability to file a charge or
   complaint with … the Securities and Exchange Commission …
   Employee further understands that this Agreement does not
   limit Employee’s ability to communicate with any
   Government Agencies or otherwise participate in any
   investigation or proceeding that may be conducted by any
   Government Agency, including providing documents or other
   information, without notice to the Company.  This
   agreement does not limit Employee’s right to receive an
   award for information provided to Government Agencies.

3. Contact its former employees who had signed the severance
   agreements and provide them with an  Internet link to both
   the Commission’s Cease-and-Desist Order, and a statement
   that the company does not prohibit its employees from “(1)
   providing information to, or communicating with, Commission
   staff without notice to the Company; or (2) accepting a
   whistleblower award from the Commission …”
4. Certify to the Commission “in writing, its compliance with
   the undertakings above.  The certification shall identify
   each undertaking, provide written evidence of compliance in
   the form of a narrative, and be supported by exhibits
   sufficient to demonstrate compliance.”

The SEC explained in the order imposing sanctions on BlueLinx
that:

… by requiring its departing employees to forgo any monetary
recovery in connection with providing information to the
Commission, BlueLinx removed the critically important
financial incentives that are intended to encourage persons to
communicate directly with the Commission staff about possible
securities law violations.

Restrictions on the ability of employees to share confidential
corporate information regarding possible securities law
violations with the Commission and to accept financial awards
for providing information to the Commission, such as those
contained in the Severance Agreements, undermine the purpose
of Section 21F, which is to “encourage individuals to report
to the Commission,” and violate Rule 21F-17(a) by impeding
individuals from communicating with the Commission staff about
possible securities law violations.

The BlueLinx case follows on the heels of
last year’s case
in which the SEC imposed sanctions on KBR, Inc., for using
confidentiality agreements that prohibited its employees from
discussing the substance of internal interviews without
clearance from KBR’s law department.  According to the SEC,
KBR’s confidentiality agreements violated Section 21F and Rule
21F-17(a) by impeding employees’ ability to report securities
law violations to the SEC.

Like the SEC, federal courts, members of the U.S. House of
Representatives, and FINRA have all
come out strongly
against companies attempting to use contracts and agreements
to impede or prevent employees from reporting securities law
violations to the SEC.

* * *

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.

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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
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