Last week the Securities and Exchange Commission (“SEC”) charged KBR, Inc., a Houston-based technology and engineering firm with violating whistleblower protection Rule 21F-17 enacted under the Dodd-Frank Act.
According to the SEC, KBR used “improperly restrictive language in confidentiality agreements with the potential to stifle the whistleblowing process.”
“By requiring its employees and former employees to sign confidentiality agreements imposing pre-notification requirements before contacting the SEC, KBR potentially discouraged employees from reporting securities violations to us,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement. “SEC rules prohibit employers from taking measures through confidentiality, employment, severance, or other type of agreements that may silence potential whistleblowers before they can reach out to the SEC. We will vigorously enforce this provision.”
Although KBR did not admit to any wrongdoing, the company voluntarily revised the language in their confidently agreement to allow for reporting of potential violations to the SEC and other federal agencies. KBR also agreed to cease and desist from future violations and to pay a $130,000 fine.
Firms should take the time now to review and ensure they don’t have restrictive language in any of their written agreements, in addition to performing a review of current whistleblowing policies and procedures. Such policies and procedures should encourage internal reporting and outline that no action will be taken against any employee for the reporting of potential or actual violations.
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