Review Has Implications for All U.S. Public Companies; Registered Investment Advisers and Broker-Dealers Should Consider Reviewing Their Employment Documents Now


On October 24, 2016, the Office of Compliance Inspections and Examinations ("OCIE") of the Securities and Exchange Commission issued a Risk Alert notifying registered investment advisers and brokerdealers that OCIE staff intends to review those entities' compliance with the rules implementing the DoddFrank Act's whistleblower provisions. The reviews will include an assessment of whether employment documents--such as employment offer letters, handbooks and severance agreements--adequately inform employees of their rights to make whistleblower disclosures despite confidentiality and other provisions limiting employees' disclosure of the employers' information. The Risk Alert states that the OCIE may report potential violations to the SEC's Division of Enforcement. Although the OCIE review is specific to registered investment advisers and broker-dealers, the Dodd-Frank whistleblower provisions relate to all public companies and the OCIE review is only one facet of the SEC's continued focus on workplace policies that it considers undermine the purpose of these provisions.


The Dodd-Frank Wall Street Reform and Consumer Protection Act amended the Securities and Exchange Act of 1934 to add a new Section 21F, "Securities Whistleblower Incentives and Protection" (the "Whistleblower Provision"). The Whistleblower Provision (1) provides for the payment of monetary rewards to individuals who provide original, independently derived information to the SEC relating to a violation of securities laws that leads to a successful enforcement action with monetary sanctions exceeding $1,000,000 and (2) prohibits employers from retaliating against whistleblowers. The antiretaliation provision provides that "no employer may discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against, a whistleblower in the terms and conditions of employment" for providing information to the SEC or making any disclosure required or protected under the securities laws.

As part of implementing Section 21F, the SEC adopted Rule 21F-17, which provides that "[n]o person may take any action to impede an individual from communicating directly with [SEC] staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement . . . with respect to such communications." Recently, the SEC has brought several enforcement actions charging employers with violating Rule 21F-17 by including in employment documents language which the SEC believes deters employees from communication with SEC staff regarding possible securities law violations. Our memorandum on the first of those enforcement actions, In the Matter of KBR, Inc., can be found here.


The Risk Alert notifies investment advisers and broker-dealers that OCIE staff will examine compliance with Rule 21F-17 when they consider such examination to be appropriate. The examination will include a review of employment documents, including, but not limited to, compliance manuals, codes of ethics and employment and severance agreements. Staff will analyze these employment documents for "provisions that may contribute to violations of Rule 21F-17 in circumstances where their use impedes employees or former employees from communication with the [SEC]." The Risk Alert specifically identifies certain provisions which the SEC has already found to be violative of Rule 21F-17 or potentially problematic, including provisions that:

  • purport to limit the types of information that an employee may convey to the SEC or other authorities,
  • require departing employees to waive their rights to any individual monetary recovery in connection with reporting information to the government,
  • require an employee to represent that he or she has not assisted in any investigation involving the registrant, or
  • prohibit disclosures of confidential information, or require an employee to notify and/or obtain consent from the registrant prior to disclosing confidential information, without any exception for voluntary communications with the SEC concerning possible securities laws violations.

OCIE staff will note deficiencies and may report potential violations of Rule 21F-17 to the SEC's Division of Enforcement.


As demonstrated by recent enforcement actions regarding violations of Rule 21F-17 and recent statements by the new Chief of the SEC Office of the Whistleblower, Jane Norberg, the SEC is actively focused on workplace policies that it considers undermine the purpose of the Whistleblower Provision. The Risk Alert demonstrates the SEC's continued attention to such policies. Given the SEC's broad interpretation of Rule 21F-17, all employers may wish to review employment documents--including documents of broad applicability, such as confidentiality and non-disparagement provisions in employment agreements, severance agreements and associated release of claims agreements and employee handbooks--and consider adding clarifying language to any provisions that could be interpreted to deter employees from providing truthful information to the SEC regarding potential securities law violations.