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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
Contributing Editor

Bill Waite
Contributing Editor

Russell A. Stamets
Contributing Editor

Richard Bistrong
Contributing Editor

Eric Carlson
Contributing Editor

SEC: BlackRock impeded whistleblower rights

New York-based asset manager BlackRock Inc. agreed Tuesday to pay 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.

The departing BlackRock employees had to sign separation agreements with language that they “waive any right to recovery of incentives for reporting of misconduct.”

If employees didn’t sign the agreements they wouldn’t receive their  separation payments from the firm.

BlackRock added the illegal language to its separation agreements in October 2011 — after the SEC adopted its whistleblower program rules. Blackrock used the language until March 2016.

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.

The SEC settled Tuesday’s action with an internal adiministrative order (pdf) and didn’t go to court.

Anthony Kelly of the SEC enforcement division said “BlackRock took direct aim at our whistleblower program by using separation agreements that removed the financial incentives for reporting problems to the SEC.”

“Asset managers simply cannot place restrictions on the ability of whistleblowers to accept financial awards for providing valuable information to the SEC,” Kelly said.

BlackRock (NYSE: BLK) is the world’s biggest investment manager with $5.1 trillion in assets under management. About 12,000 BlackRock employees work in 70 offices in 30 countries.

The firm consented to the SEC order Tuesday without admitting or denying that it violated Rule 21F-17. 

The SEC said BlackRock voluntarily revised its separation agreements and started mandatory yearly training about employee rights under the SEC’s whistleblower program.

*     *     *

In October last year, the SEC issued a special warning to investment advisers and broker-dealers not to impede whistelbowers.

The SEC alert said violations of Rule 21F-17 can appear in agreements that:

(a) require an employee to represent that he or she has not assisted in any investigation involving the employer

(b) prohibit any and all disclosures of confidential information, without any exception for voluntary communications with the SEC concerning possible securities laws violations

(c) require an employee to notify and/or obtain consent from the employer prior to disclosing confidential information, without any exception for voluntary communications with the SEC concerning possible securities laws violations, or

(d) purport to permit disclosures of confidential information only as required by law, without any exception for voluntary communications with the SEC concerning possible securities laws violations.

*     *     *

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. It was the same language SandRidge regularly used with departing employees, the SEC said.

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. The agreement could have imposed a $250,000 penalty if the employee violated strict non-disclosure terms.

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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