On September 9, 2024, the Securities and Exchange Commission (SEC) announced settled charges against seven public companies for violations of certain whistleblower protections provided by Rule 21F-17 under the Securities Exchange Act of 1934. The cases, which echo similar themes from past enforcement activity, highlight the SEC’s ongoing focus on enforcing its whistleblower protection rules.
The SEC adopted Rule 21F-17 in 2011, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, in order to implement Section 21F, “Whistleblower Incentives and Protection,” of the Securities Exchange Act of 1934. The congressional purpose of these provisions was to encourage whistleblowers to report possible securities law violations, by providing financial incentives, prohibiting employment-related retaliation and providing various confidentiality guarantees. Rule 21F-17 provides as follows:
(a) No person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement . . . with respect to such communications.
(b) If you are a director, officer, member, agent, or employee of an entity that has counsel, and you have initiated communication with the Commission relating to a possible securities law violation, the staff is authorized to communicate directly with you regarding the possible securities law violation without seeking the consent of the entity’s counsel.
The SEC has aggressively enforced Rule 21F-17 through several waves of enforcement actions. Recent enforcement activity, including the latest seven settled charges, has focused on certain provisions, such as confidentiality clauses, that the SEC believes discourage employees from reporting possible securities law violations. These include provisions that may impede a person’s right to be a whistleblower, whether by prohibiting voluntary communications with governmental authorities, restricting the type of information that may be provided to governmental authorities, requiring employees to notify or obtain approval from the company in connection with protected communications, or requiring employees to waive their right to recover monetary awards for participating in government investigations. In several enforcement actions, while the offending provision did contain a carve-out intended to permit whistleblower activity, the SEC determined the carve-out was not sufficiently clear and therefore could impede someone from acting as a whistleblower.
In light of the ongoing enforcement landscape, public and private companies, broker-dealers and investment advisers should conduct a review of their agreements, templates and policies for compliance with Rule 21F-17. While offending provisions are often contained in employment, separation or related agreements, the scope of review should expand beyond these types of agreements, as these provisions may also be identified in internal company policies, such as codes of conduct and other documents that include confidentiality and reporting provisions. Companies should ensure that these documents contain sufficient carve-outs for protected whistleblower activity and do not include language the SEC has identified as problematic.
