SEC cracks down on whistleblower protection

The US Securities and Exchange Commission (SEC) fired a warning shot on firm-imposed whistleblower restrictions, fining engineering firm KBR $130,000 for confidentiality agreements it believed prevented employees from exposing any bad behavior to outside authorities.

During internal investigations interviews, KBR required witnesses to sign a form confidentiality statement stating they were “prohibited from discussing the particulars” of the interview and any unauthorized disclosure would be “grounds for disciplinary action up to and including termination of employment.”

Although the SEC did not have any evidence that the form prevented a KBR employee from approaching the SEC, or that KBR enforced the agreement or prevented communications between its employees and the SEC, the commission believed the statement may have impeded whistleblowers from reporting possible securities violations.

KBR agreed to pay $130,000 to settle the charges, and has amended its confidentiality statement to explicitly state that the agreement does not prohibit reporting possible violations of federal law or regulation to any governmental agency or entity. The firm also agreed to notify any employees who signed the statement from August 21, 2011 (the date the whistleblower protection rule came into effect) to say that the agreement does not prevent them from reaching out to the government to report possible violations.

“KBR was the sacrifice to alert others to this potential problem,” said Doug Cornelius. CCO of Beacon Capital Partners, in his Compliance Building blog. “It seems harsh for KBR considering there is no statement of an incident where harm was done.”

Whistleblower retaliation made headlines last week as the main piece of a current lawsuit and SEC investigation against TPG Capital. The buyout giant’s former spokesman Adam Levine claims TPG fired him in December and filed a defamatory lawsuit against him in January after he questioned the legality of TPG’s fee and expense practices and told the firm he was reporting the matter to regulators.

The SEC said it received 3,620 whistleblower tips in its 2014 fiscal year.