The U.S. Securities and Exchange Commission (SEC) charged seven public U.S. companies with using agreements that restricted employees from reporting securities law violations, resulting in over $3 million in penalties. The SEC takes strict action against organizations and individuals who seek to contractually restrict whistleblowers’ rights. The regulator needs insiders to disclose financial wrongdoing and compliance violations.
Key Points:
- The U.S. SEC charged seven public companies for impeding whistleblowers’ ability to report misconduct.
- Companies used employment and separation agreements that violated SEC Rule 21F-17(a). According to the SEC, these companies required employees to waive their right to possible whistleblower monetary awards.
- The firms have agreed to pay over $3 million in combined civil penalties.
Short Narrative:
The U.S. SEC has charged seven public companies for violating whistleblower protection rules by using employment and separation agreements that hindered employees from reporting potential misconduct to the SEC. The companies, which include Acadia Healthcare, a.k.a. Brands Holding, AppFolio, IDEX Corporation, LSB Industries, Smart for Life, and TransUnion, have agreed to pay a combined $3 million in civil penalties as part of the settlement.
These companies were found to have required employees to waive their rights to potential whistleblower monetary awards, a practice the SEC says undermines the integrity of its whistleblower program. This program is designed to encourage reporting of securities law violations while offering protection and incentives to those who come forward.
Actionable Insight:
Corporate compliance teams in the U.S. must ensure that all employment and separation agreements are fully aligned with SEC Rule 21F-17(a). Any provisions that may discourage or restrict employees from directly communicating with the SEC could lead to significant penalties and reputational damage. Companies should regularly review and update agreements to remain compliant with whistleblower protection regulations and foster a culture of transparency.
Call for Information:
FinTelegram invites compliance professionals and legal experts to share insights on best practices for maintaining whistleblower protections within corporate agreements. How can organizations ensure they comply with SEC regulations while safeguarding their interests? Contributions from those involved in corporate governance are encouraged.
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