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SEC Takes Down Yet Another Company Trying to Silence Whistleblowers

Posted  September 28, 2023

It was only a few weeks ago that the Securities and Exchange Commission (SEC) slapped down Monolith Resources for forcing departing employees to sign separation agreements making them waive their right to any whistleblower rewards for reporting fraud to the government.  In announcing that enforcement action, the SEC stressed the need for companies to appreciate that taking any steps to silence whistleblowers is taboo:

Both private and public companies must understand that they cannot take actions or use separation agreements that in any way disincentivize employees from communicating with SEC staff about potential violations of the federal securities laws.  Any attempt to stifle or discourage this type of communication undermines our regulatory oversight and will be dealt with appropriately.

In doing so, the SEC recognized the critical role of whistleblower rewards under the SEC Whistleblower Program in encouraging individuals to step forward in the face of what can be significant corporate retribution and retaliation against whistleblowers.  The SEC also reaffirmed its commitment to enforcing the SEC’s Whistleblower Protection Rule 21F-17, which proscribes taking “any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation.”

It did not take long for the SEC to act again against a company getting in the way of whistleblowers.  Last Monday (September 19), the agency announced it settled charges against CBRE, Inc., a Dallas-based commercial real estate services and investment firm and subsidiary of publicly traded CBRE Group, Inc.  This time, the transgression was using an employee release to more broadly dissuade departing employees from bringing complaints to the government.

Specifically, as detailed in the SEC Order announcing the settlement, CBRE required its employees to sign a release as a condition for receiving separation pay, attesting that they had not filed a complaint against the company with any federal agency:

Employee represents . . . [t]hat Employee has not filed any complaint or charges against CBRE . . . with any state or federal court or local, state or federal agency, based on the events occurring prior to the date on which this Agreement is executed by Employee.

The SEC found this provision “to impede potential whistleblowers from reporting complaints to the Commission,” directly undermining the purpose of the Whistleblower Protection Rule.  CBRE agreed to drop the offending language and pay a civil penalty of $375,000.  The company also contacted more than 800 former employees who had signed the improper release, spelling out their unfettered right to report potential securities violations to the SEC.

In announcing the settlement, the SEC again made it clear how important it is to maintain a free and open channel of communication between the agency and its whistleblowers: “It is critical that employees are able to communicate with SEC staff about potential violations of the federal securities laws without compromising their financial interests or the confidentiality protections of the SEC’s whistleblower program.”  It also commended CBRE “for its swift and far-reaching remediation” of the problem once the SEC came knocking, a fact that played into the relatively modest penalty the SEC imposed.

All this once again showing how determined the SEC is in safeguarding the various incentives and protections afforded individuals who voluntarily provide information to the SEC that leads to a successful enforcement action.  One of the key incentives under the Program is the right of successful whistleblowers to receive up to 30% of any government recovery.  For some whistleblowers, this has amounted to awards of tens of millions, even hundreds of millions of dollars.

The SEC continues to make it clear, they want to hear from you.  And they will not let anyone stand in your way.  So if you think you may have information on potential securities violations and would like to speak with an experienced member of the Constantine Cannon whistleblower team, please do not hesitate to contact us.

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Tagged in: Securities Fraud,