{"id":10020,"date":"2026-03-19T05:04:04","date_gmt":"2026-03-19T05:04:04","guid":{"rendered":"https:\/\/usatrustedlawyers.com\/blog\/sec-brings-additional-enforcement-actions-based-on-separation-agreements-that-allegedly-violated-the-secs-whistleblower-protection-rules\/"},"modified":"2026-03-19T05:04:04","modified_gmt":"2026-03-19T05:04:04","slug":"sec-brings-additional-enforcement-actions-based-on-separation-agreements-that-allegedly-violated-the-secs-whistleblower-protection-rules","status":"publish","type":"post","link":"https:\/\/usatrustedlawyers.com\/blog\/sec-brings-additional-enforcement-actions-based-on-separation-agreements-that-allegedly-violated-the-secs-whistleblower-protection-rules\/","title":{"rendered":"SEC Brings Additional Enforcement Actions Based on Separation Agreements that Allegedly Violated the SEC\u2019s Whistleblower Protection Rules"},"content":{"rendered":"\n
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September 10, 2024 Update.<\/strong> The SEC continues to announce settlements of charges against companies that it alleges interfere with whistleblower rights under SEC Rule 21F-17(a). On September\u00a09, 2024, the SEC announced<\/a> seven settlements with companies totaling over $3\u00a0million, based on allegations that the companies engaged in conduct including: (i)\u00a0entering into agreements with employees that included language that could be construed as preventing employees from receiving a whistleblower award; (ii)\u00a0asking employees to represent that they have not filed a complaint with governmental agencies, and to agree not to do so going forward; and (iii)\u00a0imposing confidentiality terms on third parties that only permit disclosure of confidential information to the extent required by law.<\/p>\n

Additionally, on September 4, 2024, the SEC announced<\/a> a $240,000 settlement with a broker-dealer and two affiliated investment advisers for allegedly impeding 11 brokerage customers from reporting securities law violations by asking the clients to sign confidentiality agreements in connection with payments made by the entities to the clients. Some of those agreements also included representations that the clients had not reported the underlying dispute to regulators, and included agreements to refrain from such reporting to the government.<\/p>\n

Previously, on January 16, 2024, the SEC announced<\/a> a $18 million settlement under SEC Rule 21F-17(a) with a bank for allegedly asking 362 customers to sign release agreements that required the customers to keep the release agreement, as well as all information related to their accounts, confidential. The release agreements were presented when the bank offered its customers credits or settlements worth between $1,000 and $165,000.<\/p>\n

These settled enforcement actions reflect the fact that employment agreements, and other documents with confidentiality obligations, face continued scrutiny by the SEC, and employers should consider proactively reviewing the language in such agreements.<\/p>\n

October 5, 2023 Update.<\/strong> On September 29, 2023, the SEC announced<\/a> a $10,000,000 settlement with a registered investment adviser whose employment agreements allegedly impeded employee whistleblowing, in violation of SEC Rule 21F-17(a). The SEC found that, between 2011 and 2019, the company required new employees to sign employment agreements that prohibited the disclosure of confidential information, unless authorized by the company or required by law. Additionally, the SEC found that, between 2011 and 2023, the company required about 400 departing employees to sign general releases of claims, which included an affirmation that the employees had not filed any complaints with any governmental agency, department, or official in order to receive payment.\u00a0<\/p>\n

The settlement noted that, in 2017, the company sent a firm-wide email notifying employees that their confidentiality obligations did not interfere with their ability to communicate with regulators without notice to the company, but the company did not revise its employment agreements or general releases until 2019 and 2023, respectively. The SEC further noted that it was aware of one employee who was \u201cdiscouraged from communicating with Commission staff about potential violations of securities laws\u201d due to the provisions at issue. In a press release<\/a>, the Director of the SEC\u2019s Division of Enforcement, Gurbir Grewal, remarked: \u201cEntities employing confidentiality, separation, employment and other related agreements should take careful notice of today\u2019s enforcement action . . . . The Commission takes seriously the enforcement of whistleblower protections and those drafting or using these types of agreements should take equally serious[ly] their obligations to ensure that they don\u2019t impede whistleblowers from contacting the Commission.\u201d<\/p>\n

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Summary.<\/b>\u00a0 In September 2023, the SEC announced several settlements concerning companies\u2019 use of employee separation agreements that allegedly impeded communications with Commission staff about potential violations of securities laws. One settlement<\/a> concerned a privately held company\u2019s use of employee separation agreements that required departing employees to waive their rights to collect monetary whistleblower awards in connection with filing claims with or participating in investigations by government agencies. The other<\/a> concerned a company\u2019s agreement that required separating employees to attest that they had not filed a complaint against their employer with any federal agency before receiving separation pay. These enforcement actions reflect the SEC\u2019s continued focus on enforcing its whistleblower protection rules and an expansive view of actions that it views as impeding whistleblowing to the Commission, regardless of whether there is any evidence that an agreement in fact caused such an impediment.<\/p>\n

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September 22, 2023.\u00a0\u00a0<\/b>In September 2023, the Securities and Exchange Commission (\u201cSEC,\u201d or the \u201cCommission\u201d) filed separate orders instituting cease-and-desist proceedings against an energy and technology company and a real estate firm for violations of SEC Rule 21F-17. The rule at issue provides: \u201cNo person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement .\u00a0.\u00a0. with respect to such communications.\u201d<\/p>\n

On September 8, 2023, the SEC found<\/a> that the following language in a separation agreement impaired employees\u2019 ability to act as whistleblowers: \u201c[Governmental] agencies have the authority to carry out their own statutory duties by investigating charges or claims, issuing determinations, filing lawsuits in their own name or taking other action authorized by statute. You retain the right to participate in any such action, but not the right to recover money damages or other individual legal or equitable relief awarded by any such governmental agency.\u201d The SEC found the agreement\u2019s provision that \u201cnothing in this agreement is intended to limit in any way your right or ability to file a charge or claim with any .\u00a0.\u00a0. agency\u201d to be an insufficient carve-out because financial incentives are a \u201ccritical component\u201d in promoting whistleblowing about possible violations of securities laws.<\/p>\n

After the SEC initiated its investigation, the company, which is privately held, revised its separation agreements to make clear that, in addition to not restricting a departing employee\u2019s right to communicate with or provide assistance to government agencies, the separation agreement did not in any way limit a separated employee\u2019s right to obtain an incentive award in connection with providing such information to government agencies. The company did so by adding language stating that \u201cnothing in this [a]greement shall bar or impede in any way your ability to seek or receive any monetary award or bounty from any governmental agency or regulatory or law enforcement authority in connection with protected \u2018whistleblower\u2019 activity.\u201d<\/p>\n

Without admitting or denying the charges, the company agreed to pay a civil penalty of $225,000, which took into account the company\u2019s remedial actions, including notifying former employees that the agreements do not limit their access to financial awards in connection with cooperation with the government.<\/p>\n

On September 19, 2023, the SEC found<\/a> another separation agreement to undermine the purpose of Section 21F and Rule 21F-17 to \u201cencourage individuals to report to the Commission.\u201d The separation agreement included the following language: \u201cEmployee represents and acknowledges [t]hat Employee has not filed any complaint or charges against CBRE, or any of its respective subsidiaries, affiliates, divisions, predecessors, successors, officers, directors, shareholders, employees, representatives or agents .\u00a0.\u00a0. with any .\u00a0.\u00a0. court or .\u00a0.\u00a0. agency, based on the events occurring prior to the date on which this Agreement is executed by Employee.\u201d The SEC saw the conditioning of separation pay on employees\u2019 signing the release as an action that impeded potential whistleblower activity.<\/p>\n

Even though the company included language that \u201c[n]othing in this Agreement shall be construed to prohibit Employee from filing a charge with or participating in any investigation [by any] federal, state or local agency,\u201d the Order noted that \u201cthis carve-out was prospective in application, and therefore did not remedy the impeding effect\u201d of the agreement. The SEC stated<\/a> that employees must be able to communicate with SEC staff \u201cwithout compromising their financial interests\u201d or their right to confidentiality.<\/p>\n

Without admitting or denying the charges, the company agreed to a civil penalty of $375,000, which took into account its remedial actions and cooperation. In response to the investigation, the company initiated a comprehensive remediation program and advised more than 800 employees who had signed the separation agreement of their rights and protections.<\/p>\n

Notably, the SEC orders in both matters reflect that the Commission was unaware of any instance where the language in the separation agreements at issue actually impeded any purported whistleblowing activity.<\/p>\n

The settlements demonstrate the SEC\u2019s continued focus on employment agreements that may be interpreted by the Staff to discourage whistleblowing. In June 2022, for example, a money processing service company agreed<\/a> to pay $400,000 to resolve an SEC investigation based on language in its employee confidentiality agreements which prohibited employees from disclosing confidential company information to any third party without prior written approval from a company executive officer. More recently, in February 2023, a video game company agreed<\/a> to pay $35\u00a0million to settle charges, one of which related to its separation agreement\u2019s requirement that the departing employee provide notice to the company should they receive a request for information from the SEC. In light of the SEC\u2019s enforcement focus, companies should proactively review language in separation agreements.<\/p>\n<\/p><\/div>\n","protected":false},"excerpt":{"rendered":"

September 10, 2024 Update. The SEC continues to announce settlements of charges against companies that it alleges interfere with whistleblower rights under SEC Rule 21F-17(a). On September\u00a09, 2024, […]<\/p>\n","protected":false},"author":1,"featured_media":10021,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6],"tags":[651,1427,718,2097,7241,463,1385,2811,351,762,3945,7583,4540,997],"class_list":["post-10020","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-lawyers","tag-actions","tag-additional","tag-agreements","tag-allegedly","tag-based","tag-brings","tag-enforcement","tag-protection","tag-rules","tag-sec","tag-secs","tag-separation","tag-violated","tag-whistleblower"],"_links":{"self":[{"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/posts\/10020","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/comments?post=10020"}],"version-history":[{"count":0,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/posts\/10020\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/media\/10021"}],"wp:attachment":[{"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/media?parent=10020"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/categories?post=10020"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/tags?post=10020"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}