The Securities and Exchange Commission Wednesday said an Atlanta-based building products distributor violated securities laws by using severance agreements that required departing employees to waive their rights to recover money from any whistleblower claims they filed with the SEC or other federal agencies.
BlueLinx Holdings Inc. agreed to pay a $265,000 penalty to settle the charges.
According to the SEC’s order (pdf), BlueLinx added “the monetary recovery prohibition” to all of its severance agreements in mid-2013.
The SEC settled the case with an internal administrative order and didn’t go to court.
Nearly two ago the SEC adopted Rule 21F-17 under the Dodd-Frank Act. it prohibits any action to impede someone from communicating with the SEC about possible securities law violations.
BlueLinx’s restrictive language “forced employees leaving the company to waive possible whistleblower awards or risk losing their severance payments and other post-employment benefits,” the SEC said.
BlueLinx is the biggest building products wholesaler in the country. It trades on the NYSE under the symbol BXC.
Last year, the SEC brought an enforcement action against KBR Inc. for using restrictive language in confidentiality agreements that could stifle whistleblowing.
Houston-based KBR agreed to pay a $130,000 penalty to settle the SEC’s charges.
Jane Norberg, acting chief of the SEC’s Office of the Whistleblower, said Wednesday: “Companies simply cannot undercut a key tenet of our whistleblower program by requiring employees to forego potential whistleblower awards in order to receive their severance payments.”
BlueLinx consented to the SEC’s cease-and-desist order without admitting or denying the findings.
The company agreed to pay the penalty and amend its severance agreements to remove the restrictive language.
BlueLinx also agreed to tell current and some former employees they can report possible securities law violations to the SEC and other federal agencies without BlueLinx’s prior approval and without having to forfeit any resulting whistleblower award.
David Marshall, a lawyer in Washington, DC who represents whistleblowers, told the FCPA Blog Wednesday’s order “sends a resounding message to employers and their agents nationwide: the SEC will not tolerate employer-imposed agreements that are intended to deter would-be whistleblowers . . . however indirect and however craftily worded.”
“This is a very positive development for the investing public, who continue to benefit from the SEC whistleblower program and from the courage of the thousands of individuals who have stepped forward to provide information to the Commission through the program,” Marshall said.
The SEC has now awarded more than $85 million to 32 whistleblowers since the whistleblower program started in 2011.
Last year it received nearly 4,000 tips — from every state and the District of Columbia, as well as 61 foreign countries.
None of the awards so far involve FCPA offenses.
Richard L. Cassin is the publisher and editor of the FCPA Blog. He’ll be the keynote speaker at the FCPA Blog NYC Conference 2016.