SEC Whistleblower Chief Warns Against Suppression Tactics

The Securities and Exchange Commission (“SEC”) Whistleblower Chief, Sean McKessy, appeared before the Georgetown University Law Center Corporate Counsel Institute earlier this month and offered some advice to in-house attorneys.  According to Law360, Mr. McKessy suggested that in-house attorneys  may be disciplined for drafting contracts that offer incentives for employees to keep alleged securities fraud whistleblower complaints in-house.

Mr. McKessy, who appeared alongside Commodity Futures Trading Commission whistleblower chief Christopher Ehrman and the Government Accountability Project’s legal director, Tom Devine, told the lawyers present at the panel discussion to be aware that “this is something we are very concerned about. If you’re spending a lot of your time trying to come up with creative ways to get people out of our programs, I think you’re spending a lot of wasted time and you run the risk of running afoul of our regulations.”

Mr. McKessy went on to tell the panel that the SEC was “actively looking for examples of confidentiality agreements, separates agreements, employee agreements that ... in substance say ‘as a prerequisite to get this benefit you agree you’re not going to come to the commission or you’re not going to report anything to a regulator. And if we find that kind of language, not only are we going to go to the companies, we are going to go after the lawyers who drafted it.  We have powers to eliminate the ability of lawyers to practice before the commission. That’s not an authority we invoke lightly, but we are actively looking for examples of that.”

Katz, Marshall & Banks partners David J. Marshall and Debra S. Katz wrote the SEC about this issue In May 2013.  The letter called for the SEC to enact regulations that would put an end to efforts by corporations to impose contractual limitations on the ability of whistleblowers ability to submit information to the SEC.  Mr. Marshall and Ms. Katz called for the SEC to issue an opinion making clear that such tactics would not be tolerated, explained that, “whether enforceable or not, the inclusion of such terms in severance agreements and settlement agreements resolving employment claims has a chilling effect on individuals who would provide information to the SEC about potential securities violations.”