The Securities and Exchange Commission (SEC) announced a settlement Wednesday with global technology and engineering firm KBR Inc. over findings that the company’s employment agreements could have muzzled whistleblowers.
The agreement with Houston-based KBR is the agency’s first enforcement action against a company for using restrictive language in confidentiality agreements that could effectively bar any potential whistleblower from sharing information about securities law violations, fraud, or other misconduct with SEC regulators.
“SEC rules prohibit employers from taking measures through confidentiality, employment, severance, or other type of agreements that may silence potential whistleblowers before they can reach out to the SEC. We will vigorously enforce this provision,” said enforcement director Andrew Ceresney in a statement.
The SEC has been relying on whistleblowers to help police for financial fraud since the Dodd-Frank financial reform bill was passed in 2010. The SEC’s Office of the Whistleblower was established by that law to help federal authorities protect investors and avert more financial crises like those that rocked the global economy in 2007-08.
To encourage insiders to share tips about securities violations and other wrongdoing, the SEC’s whistleblower program awards tipsters 10 percent to 30 percent of penalties collected if their information leads to a successful enforcement action with sanction exceeding $1 million.
To settle the SEC’s allegations, KBR agreed to pay $130,000 and change the language in its confidentiality agreements, making it clear that employees are free to report possible violations to the SEC and other federal agencies without the company’s approval or fear of retaliation.
The SEC said a KBR had a blanket provision that required witnesses in certain internal investigation interviews to sign confidentiality statements, and that the language of those agreements potentially had a chilling effect on would-be whistleblowers. The SEC said that it had found no evidence that KBR had ever used the agreements to stop an employee from communicating with the SEC.
The KBR finding is the result of a recent push by the SEC to analyze the employment contracts, confidentiality agreements, and other documents of corporations to make sure whistleblowers aren’t being gagged since the passage of Dodd-Frank.