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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”.

SEC Order NeuStar

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.”

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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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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.

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The Pickholz Law Offices represents U.S. and international clients in securities and white collar cases. The Firm has helped whistleblowers report frauds to the SEC, CFTC, and IRS, and has defended clients in investigations by the SEC, CFTC, DOJ, FINRA, and other financial and securities enforcement regulators.

The Firm’s founder, Jason Pickholz, is the author of the two-volume book Securities Crimes, has appeared on tv and radio, and has taught continuing legal education courses. A former BigLaw partner, he has been representing clients in financial and securities fraud cases since 1995. In recognition of his many achievements, Mr. Pickholz was elected by his legal peers to be a Fellow of The New York Bar Foundation, an honor limited to just 1% of all attorneys in the New York State Bar Association.

Mr. Pickholz has been counsel in many high-profile cases. He was the first attorney ever to win an SEC whistleblower award on appeal to the Commission, which Inside Counsel magazine called one of the five key events in the history of the SEC whistleblower program. On the defense side, Mr. Pickholz has defended clients in the SEC’s COVID-19 investigations, the CFTC’s cryptocurrency cases, and a former US Senator, among others.

If you want to speak with a CFTC, IRS, or SEC whistleblower lawyer, or with a white collar defense lawyer, you can call the Firm at 347-746-1222.

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