Problems with Whistleblower Investigations and Confidentiality

By Linda H. Evans,
Senior Associate.


A Houston-based global technology and engineering firm has to pay a $130,000 fine to the SEC for an alleged violation of whistleblower protection rules. The problem stemmed from the restrictive language which was part of the confidentiality agreement that employees were required to sign when reporting potential illegal company activity. Employees were warned that they could face disciplinary actions up to and including termination if they discussed such matters with outside parties without first getting approval from the company’s legal department. The SEC said employees need to be able to report possible violations without company’s approval or fear of retaliation. The company has since corrected its agreements.


This is the first case brought under a 2010 law overhauling Wall Street and financial regulation. As a reminder: The rule prohibits companies from taking any action to block whistleblowers from reporting securities-law violations to the agency. The SEC also said this could apply to other agreements, such as employment or severance agreements.