SEC Settles Charges Against (Yet Another) Company for Claims It Violated Whistleblower Protection Rules with Agreements Limiting the Ability to Report to SEC

The SEC recently announced settled charges against investment adviser GQG Partners LLC over claims it entered into agreements that made it harder for individuals to report potential violations to the SEC. This is yet another example of the SEC enforcing whistleblower protections and going after companies that try to inhibit reporting to the SEC.

In this case, the SEC charged that GQG asked potential employees to sign non-disclosure agreements (NDAs) that “raised impediments to a Candidate’s voluntarily reporting potential violations of the federal securities laws to the [SEC].”  According to the SEC Order, the NDAs “prohibited [the candidates] from disclosing … that they had confidential information about GQG,” and, although the NDAs “permitted them to respond to requests for information from the [SEC],” the NDAs “required notification to GQG of any such requests and prohibited them from responding to requests arising from a Candidate’s voluntary act of disclosure.”

In addition, the SEC also charged that GQG entered into a Release and Settlement with a former employee, which, despite “carv[ing] out from its confidentiality provisions the reporting of possible securities law violations to government agencies,” “required representations by the Former Employee that he or she (i) had not sought to initiate any investigation by any government agency, (ii) was aware of no facts that would form the basis of such an investigation, and (iii) would withdraw any statements already made that would form the basis of an investigation.”

Consistent with its recent enforcement trend, the SEC determined that these practices violated Exchange Act Rule 21F-17(a), which broadly prohibits companies from taking any action to impede or discourage whistleblowers from reporting suspected securities violations to the SEC. In the words of Corey Schuster, SEC Co-Chief of the Division of Enforcement’s Asset Management Unit, “Whether through agreements or otherwise, firms cannot impose barriers to persons providing evidence about possible securities law violations to the SEC, as GQG did.” Notably, the SEC reached its determination as to the GQG agreements despite being unaware of any instance in which GQG actually took action to enforce the language in the problematic agreements.

Although GQG did not admit or deny the SEC’s findings, it agreed “to be censured, to cease and desist from violating the whistleblower protection rule, and to pay a $500,000 civil penalty.”

The SEC has repeatedly charged companies for similar misconduct in recent years.  Indeed, the SEC’s Order noted that since 2015, it has instituted “over twenty additional enforcement actions charging violations of Rule 21F-17.” For another recent example, last month the SEC charged seven public companies with violating the whistleblower protection rule. You can read more about this blog’s analysis of these types of actions here and here.

All these enforcement activities show the SEC’s determination in protecting the right of whistleblowers to report to the SEC, and to safeguard rewards whistleblowers might be entitled to for providing information that leads to a successful enforcement action.

If you think you may have information relating to potential securities violations, the SEC wants to hear from you and, as shown by this recent example, may take enforcement action against companies that try to limit such reporting. If you would like more information on the SEC whistleblower program or what it means to be an SEC whistleblower, please don’t hesitate to contact us so we can connect you with an experienced member of our whistleblower lawyer team for a free and confidential consultation.

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