Companies Barred from Silencing Whistleblowers in Confidentiality Agreements

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Companies Barred from Silencing Whistleblowers in Confidentiality Agreements

KBR Inc., a global technology and engineering firm with its headquarters in Houston, TX, was charged with violating whistleblower protection Rule 21F-17, which forbids companies from taking any actions to obstruct employees from reporting to the SEC any potential securities violations.

KBR produced a confidentiality statement that was to be signed by employees in certain internal investigations before moving forward in the investigation.  The confidentiality statement included language threatening termination if employees discussed internal matters with any outside party without prior approval of KBR’s legal department.  The SEC determined that the confidentiality agreement violated Rule 21F-17 because the internal investigations involved allegations of potential SEC violations.

KBR voluntarily amended its confidentiality statement to include language ensuring that employees are free to notify the SEC and other appropriate federal agencies of possible violations without approval of KBR’s legal team or fear of termination.

Andrew Ceresney, SEC’s Division of Enforcement Director, warns other companies that the SEC “will vigorously enforce this provision.” He further says, “SEC rules prohibit employers from taking measures through confidentiality, employment, severance, or other type of agreements that may silence potential whistleblowers before they can reach out to the SEC.”

The SEC’s order brought about a settled administrative proceeding.  The SEC found no instances in which KBR specifically withheld employees from notifying the SEC of any specific securities law violations.  Nevertheless, any absolute ban like the one found in KBR’s confidentiality statement that disables employees from communication with the SEC can potentially hinder whistleblowers from reporting conduct to the SEC.

Since these charges, KBR has modified its agreements to ensure employees that retaliation or termination will never occur if and when an employee reports securities violations to the SEC. Sean McKessy, Chief of the SEC’s Office of the Whistleblower, also said, “Other employers should similarly review and amend existing and historical agreements that in word or effect stop their employees from reporting potential violations to the SEC.”

If you or someone you know has lost money as a result of an investment or Ponzi scheme, please contact Richard Frankowski at 888-741-7503 to discuss your potential legal remedies or complete the contact form.

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