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Harry Cassin
Publisher and Editor

Andy Spalding
Senior Editor

Jessica Tillipman
Senior Editor

Bill Steinman
Senior Editor

Richard L. Cassin
Editor at Large

Elizabeth K. Spahn
Editor Emeritus

Cody Worthington
Contributing Editor

Julie DiMauro
Contributing Editor

Thomas Fox
Contributing Editor

Marc Alain Bohn
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Bill Waite
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Russell A. Stamets
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Richard Bistrong
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Eric Carlson
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SEC: Seattle bank impeded whistleblowers during investigation

HomeStreet Inc. settled SEC allegations Thursday that it conducted improper hedge accounting and later took illegal steps to impede employees from talking to the SEC about it.

The bank agreed to pay a $500,000 penalty without admitting or denying wrongdoing.

HomeStreet serves customers in the Western United States and Hawaii.

The SEC said HomeStreet made unsupported adjustments to its hedge effectiveness testing so it could use favorable accounting treatment. HomeStreet employees then reported concerns to management about accounting errors.

The  SEC said,

When the SEC contacted the company in April 2015 seeking documents related to hedge accounting, HomeStreet presumed it was in response to a whistleblower complaint and began taking actions to determine the identity of the “whistleblower.” 

The bank suggested to one individual considered to be a whistleblower that the terms of an indemnification agreement could allow HomeStreet to deny payment for legal costs during the SEC’s investigation, the SEC said.

HomeStreet also required former employees to sign severance agreements waiving potential whistleblower awards or risk losing their severance payments and other post-employment benefits.

The SEC settled the case through an internal administrative order (pdf) and didn’t go to court.

SEC Rule 21F-17 outlaws “any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation.” The rule is part of the 2010 Dodd-Frank Act to encourage and protect whistleblowers.

In a statement Thursday, HomeStreet said the SEC “acknowledged . . . that it is unaware of any instances where a current or former employee did not communicate with the Commission about potential securities law violations.”

*     *     *

The SEC has brought a string of enforcement actions against companies that allegedly tried to impede whistleblowers.

Earlier this week, New York-based asset manager BlackRock Inc. paid a $340,000 penalty to settle SEC  charges that it forced more than a thousand exiting employees to waive their ability to obtain whistleblower awards.

In December 2016, the SEC fined SandRidge Energy Inc. $1.4 million for putting language in a whislteblower’s separation agreement that prohibited participating in any government investigation or disclosing information potentially harmful or embarrassing to the company.

Also in December, the SEC fined Virginia-based tech firm NeuStar Inc. $180,000 for using severance agreements that impeded 246 departing employees from communicating information to the SEC.

In September, Anheuser-Busch InBev paid the SEC $6 million to settle charges that it violated the Foreign Corrupt Practices Act and impeded a whistleblower who reported the misconduct. The company used a separation agreement that stopped the employee from continuing to voluntarily communicate with the SEC about potential FCPA violations.

In August, insurance provider Health Net Inc. paid a $340,000 penalty 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.

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

The SEC brought other 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.


Richard L. Cassin is the publisher and editor of the FCPA Blog.

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1 Comment

  1. Thanks to Dick Cassin for an insightful summary. Companies should know that whatever 'creative' means they conjure to control their WBs will ultimately be scrutinized and will count against them. The only responsible approach is to support a strong, open ethical leadership culture that raises problems to management where they can be properly addressed and fixed, before third parties do so on their own terms. VW, GM and Wlls Fargo are all good case studies for companies that needed a more robust means of cultivating the right corporate culture. Of those 3, only VW has thus far used the opportunity to move decisively to Compliance 2.0. I would not be surprised to learn that those moves served the company well in its recent settlement negotiations. These developments are all useful material for better, modern Board and CSuite training- since this is where all robust compliance programs begin. #Compliance2.0 #RisingCCOLiftsAllBoats

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