SEC focusing on confidentiality agreements, CCOs warned

To ensure satisfaction of whistleblower protections, confidentiality agreements are appearing on document request lists from the US Securities and Exchange Commission (SEC) during exams, delegates cautioned at the 2015 PEI Private Fund Compliance Forum in New York.

In April, the 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.

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.

“The KBR case dealt with employee agreements, but it’s clear from exams that the focus is broader than that,” a delegate shared at the conference.

Separation agreements, employment agreements and consultancy agreements may all be requested in order to ensure the language doesn’t prevent employees, vendors or others from bringing bad behavior to the attention of inspectors.

“You don’t really think of confidentiality agreements this way,” one delegate shared. “They’re written in a way to stop your proprietary or sensitive information from leaving the firm, but now you have to change your thinking and say ‘Wait, could this clause stop someone from whistleblowing?’”