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SEC Cracks Down Again on Companies Chilling Whistleblowers from Reporting Wrongdoing

Posted  July 2, 2021

A company’s restrictive compliance manual and training materials ran afoul of the Securities and Exchange Commission (SEC)’s Rule 21F-17(a), prohibiting actions restricting, impeding, or discouraging whistleblowers from directly reporting wrongdoing to the Commission.  In its settlement against New York broker-dealer Guggenheim Securities, LLC (Guggenheim), the SEC not only censured Guggenheim but also hit it with a penalty of $208,912.

The SEC’s Order found that Guggenheim’s compliance manual, including its annual compliance training materials, strictly prohibited its employees from initiating contact with any regulator without prior approval from the company’s legal or compliance department.  The SEC found that the prohibitions could hinder whistleblower reporting, and thus undermine the goals of the SEC Whistleblower Program.

Since 2015, the SEC has brought fourteen enforcement actions, including the Guggenheim action, for violations of Rule 21F-17(a). Prior enforcement actions focused on language contained in severance agreements, non-disclosure agreements, and confidentiality agreements related to internal investigations. Underscoring the breadth of rule, the Guggenheim settlement is the first time the SEC charged a violation based on language in a compliance manual and training materials.  The Commission found neither that a Guggenheim employee was prevented from communicating with SEC staff, nor that Guggenheim took action to enforce its compliance manual’s restriction.  The Commission likely considered these facts when assessing the penalty amount.

The SEC’s program encourages any individual – regardless of their residence or nationality  –with knowledge of potential violations to securities laws, including foreign bribery, to share this information with the SEC. In exchange, whistleblowers are eligible to receive between 10 to 30 percent of the monetary sanctions collected if they exceed $1 million.  SEC whistleblowers are provided with confidentiality and anti-retaliation protections.  As of June 2021, the SEC has awarded $938 million to 179 whistleblowers since issuing its first reward in 2012.  Information provided by whistleblowers has resulted in orders of over $ 2.7 billion in monetary sanctions, of which over $850 million has been returned or is scheduled to be returned to harmed investors.

The recent Guggenheim settlement shows the SEC will continue to vigorously protect and empower whistleblowers while calling-out companies engaging in conduct aimed at chilling direct reporting to the Commission.  The Whistleblower Team at Constantine Cannon is highly experienced in helping potential whistleblowers evaluate their claims.  If you would like to know more or schedule a confidential consultation, please contact us to see how we can help.

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Tagged in: SEC Whistleblower Reward Program, Securities Fraud, Whistleblower Protection Laws, Whistleblower Rewards,