Consumer Fraud

SEC probing financial firms for anti-whistleblower activity

whistleblower 2 370x210 SEC probing financial firms for anti whistleblower activityThe U.S. Securities and Exchange Commission (SEC) has opened an investigation into whether banks and other financial corporations are silencing whistleblowers, according to the Wall Street Journal.

WSJ reports that the SEC has sent letters to numerous companies in recent weeks asking them to turn over years of nondisclosure agreements, employment contracts, and other documents that could indicate whether they require employees stay silent as a condition of employment.

The documents sought by the SEC “sometimes include clauses that impede employees from telling the government about wrongdoing in the company or other potential securities-law violations,” WSJ reported. “In some cases, the firms require employees to agree to forgo any benefits from government probes, effectively removing the financial incentive for participating in the [SEC’s Whistleblower program].”

The Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law in 2010, established the SEC’s Office of the Whistleblower, which has proven to be an effective tool in the government’s fight against financial fraud. The SEC reported that the number of tips its whistleblower office receives has risen steadily each year, as have the total awards paid out to whistleblowers.

The SEC’s whistleblower provisions award 10 to 30 percent of total penalties or settlement amounts to whistleblowers whose tips lead to a successful SEC action with sanctions exceeding $1 million. Last year, the SEC reviewed 3,620 whistleblower tips and handed out its largest award to date – a payout of more than $30 million to one overseas whistleblower.

According to WSJ, many details of the SEC’s latest probe are still unclear. “It couldn’t be determined how many companies were sent the letters, which specific companies they were sent to, or what penalties the SEC could potentially levy in the probe,” WSJ reported.

However, it is known that the SEC has asked all of the targeted firms to “to turn over every nondisclosure agreement, confidentiality agreement, severance agreement and settlement agreement they entered into with employees since Dodd-Frank went into effect, as well as documents related to corporate training on confidentiality,” WSJ reported, citing the letter and its sources.

The letter that WSJ reviewed also asked the companies to submit “all documents that refer or relate to whistleblowing,” and a list of all the employees that have been terminated since Dodd-Frank.


Wall Street Journal