Consumer Fraud

SEC Fines Health Insurer For Barring Former Employees From Seeking Whistleblower Awards

SEC Office of the Whistleblower wikipedia image 342x210 SEC Fines Health Insurer For Barring Former Employees From Seeking Whistleblower AwardsA California-based health insurance provider has agreed to pay a $340,000 penalty for illegally coercing its employees into remaining mute about company practices that did not comply with federal code.

The U.S. Securities and Exchange Commission (SEC) said last week that Health Net Inc. violated federal securities laws by stripping employees of their rights to act as whistleblowers and seek whistleblower awards as a condition to receiving severance payments and other post-employment benefits.

Health Net added the unlawful provision in August 2011 after the SEC adopted a rule prohibiting employers from taking any action to impede someone from communicating with the SEC about possible securities law violations.

Although Health Net removed the SEC-specific language from its severance agreements in June 2013, it retained restrictive language eliminating financial incentives for reporting information. Under pressure from federal authorities, Health Net finally amended the agreements last year, striking all such restrictive language.

“Financial incentives in the form of whistleblower awards, as Congress recognized, are integral to promoting whistleblowing to the Commission,” said Antonia Chion, Associate Director of the SEC’s Enforcement Division. “Health Net used its severance agreements with departing employees to strip away those financial incentives, directly targeting the Commission’s whistleblower program.”

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. The agency has awarded more than $85 million to 32 whistleblowers since the whistleblower program’s inception in 2011.

Health Net agreed to make reasonable efforts to inform former employees who signed the severance agreements from Aug. 12, 2011, to Oct. 22, 2015, that it no longer prohibits them from seeking and obtaining an SEC whistleblower award.

U.S. Securities and Exchange Commission
The Los Angeles Times
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