In Aug. 2011, as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, or Dodd-Frank, Congress authorized the SEC to provide monetary awards to whistleblowers who come forward with high-quality original information that leads to an SEC enforcement action in which over $1,000,000 in sanctions is ordered. Whistleblowers can be awarded between 10% and 30% of the money collected. Rule 21F-17 provides that “[n]o person may take any action to impede an individual from communicating directly with the [SEC] staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement.”
Initial actions by the SEC to enforce compliance with Rule 21F-17 focused on companies’ confidentiality agreements, but recent SEC actions signal an expansion of the SEC’s scrutiny to also include severance agreements. The SEC has recently issued fines against companies relating to provisions in severance agreements requiring that employees:
- waive their right to any monetary awards they could receive from filing a complaint or a charge with an administrative agency
- notify the company prior to such disclosure.
For more information on recent SEC actions relating to a company’s use of severance agreements that contain confidentiality, covenant-not-to-sue or release provisions that allegedly violated SEC whistleblower rules, see the Greenberg Traurig Alert, “SEC Scrutinizes Severance Agreements for Compliance With Dodd-Frank.”