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SEC fines Health Net Inc. for severance agreements that stifled whistleblowers

Health Net Inc. paid a $340,000 penalty Tuesday to the SEC for illegally using severance agreements that required outgoing employees to waive their ability to obtain monetary awards from the SEC’s whistleblower program.

California-based Health Net is a health insurance provider.

The SEC said in an administrative order that Health Net violated federal securities laws by taking away from departing employees severance payments and other post-employment benefits if they filed an application for an SEC whistleblower award.

Health Net added the provision to its severance agreements in August 2011 — after the SEC adopted a rule to prohibit any action to impede someone from communicating with the SEC about possible securities law violations.

Health Net removed the SEC-specific language from its severance agreements in June 2013. But it retained restrictive language that removed the financial incentive for reporting information until last year.

The SEC said Health Net violated SEC Rule 21F-17, which makes it unlawful to take “any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation.”

The rule was enacted as part of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act to encourage and protect whistleblowers.

Last week the SEC fined building-products wholesaler Blue Linx Holdings $265,000 for requiring departing employees to waive their rights to recover money from any whistleblower claims they filed with the SEC or other federal agencies.

The SEC also brought actions against KBR, Inc. in April 2015 and Merrill Lynch in June 2016 for using agreements that restricted employees’ ability to disclose information to government agencies.

Health Net consented to the SEC’s cease-and-desist order without admitting or denying the findings.

The company agreed to make reasonable efforts to inform former employees who signed the severance agreements from August 12, 2011, to October 22, 2015, that “Health Net does not prohibit former employees from seeking and obtaining a whistleblower award from the SEC under Section 21F of the Securities Exchange Act.”


The SEC’s Securities Exchange Act of 1934 Release No. 78590 and Administrative Proceeding File No. 3-17396 (both dated August 16, 2016) In the Matter of Health Net, Inc. are here (pdf).


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.

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1 Comment

  1. Whether this was a deliberate strategy or mere ignorance, Health Net should accordingly fire their lawyers, no?

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