Recent SEC Whistleblower Cases Focus on Repressive Language in Employment‑Related Agreements
Securities Enforcement Defense attorney Allison Kernisky spoke with the Hedge Fund Law Report about three recent enforcement actions taken by the U.S. Securities and Exchange Commission (SEC). The enforcement actions and subsequent settlements all concerned Rule 21F‑17(a) under the Securities Exchange Act of 1934, which prohibits persons from impeding whistleblowers from communicating with the SEC. The actions involved Monolith LLC, a private company; CBRE Inc., a public company subsidiary of CBRE Group Inc.; and D.E. Shaw, an investment adviser and hedge fund manager. Ms. Kernisky commented that the SEC takes a broad approach to enforcement of Rule 21F-17 and that the variety of entities involved in these settlements shows the agency is looking at everyone. Focusing on the D.E. Shaw case, which resulted in a $10 million penalty, she added that part of what grabbed the SEC's attention was the "asymmetry" between what it told employees and what its documents actually stated. She explained the case illustrates the importance of ensuring employment agreements, separation agreements and other documents reflect stated policy.
"If you're going to tell your employees something, then your documents had better back that up and match that. I like to tell clients to think of it like matched luggage," she said. "If your compliance manual is the gold standard, that's wonderful. But if your employment agreements, separation agreements, releases, training materials, code of conduct, not to mention actual day-to-day practices, etc. don't match the compliance manual and they all don't exist in harmony with each other, then there may be a problem."