The SEC Whistleblower Program, established under the Dodd-Frank Wall Street Reform and Consumer Protection Act, requires the SEC to pay an award to eligible whistleblowers whose tips lead to the successful enforcement of federal securities law violations. The largest award in the program’s history – $30 million – was granted just a few short weeks ago.
While frustration with the speed of the program’s payouts has been in the news recently, the agency has indicated a renewed focus in enforcing Rule 21F-17, which prohibits any action taken “to impede a whistleblower from communicating directly with [SEC] staff about a possible securities law violation, including enforcing or threatening to enforce a confidentiality agreement” (with exceptions based on attorney-client privilege) (see the ruling). The head of the SEC’s Office of the Whistleblower stated back in March that the SEC was actively investigating contracts that violate Rule 21F-17 and noted that lawyers who draft them could potentially be barred from practicing before the SEC.
Gray areas remain as the SEC’s enforcement of Rule 21F-17 continues to evolve, but confidentiality agreements, non-disclosure agreements, severance agreements and other employment-related agreements, together with employee handbooks and codes of conduct, should be carefully drafted and reviewed in light of Rule 21F-17. We will keep you apprised of further developments and any additional concrete guidance in this area.