SEC Charges Guggenheim Securities for Violation of Whistleblower Protection Rule

SEC Whistleblower

On June 23, the U.S. Securities and Exchange Commission (SEC) announced it settled charges against Guggenheim Securities, LLC, a New York-based registered broker dealer, for violating whistleblower protection laws. The SEC charged Guggenheim with violating a provision of the Dodd-Frank Act (DFA) which prohibits employers from impeding individuals from communicating directly with the SEC about potential securities law violations.

The SEC’s order finds that for several years, Guggenheim provided all employees with a Core Compliance Manual which stated that employees could not contact any regulatory body, such as the SEC, without approval from the firm. According to the SEC, the manual stated: “Employees are also strictly prohibited from initiating contact with any Regulator without prior approval from the Legal or Compliance Department. This prohibition applies to any subject matter that might be discussed with a Regulator…Any employee that violates this policy may be subject to disciplinary action by the Firm.”

The SEC determined that this provision of the Manual directly violated Rule 21F-17 of the Securities and Exchange Act which states: “No person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement . . . with respect to such communications.”

The SEC notes that it is not aware of specific instances in which Guggenheim took action to enforce the relevant provision of the manual or to otherwise restrict communication with the SEC. However, it determined that the language in the Manual was a willful violation of whistleblower protection law.

According to the SEC, after SEC staff contacted Guggenheim about the violation, the firm revised the Manual. It reportedly removed the relevant provision and added a sentence stating: “nothing in [the Manual] prohibits or restricts any person in any way from reporting possible violations of law or regulation to any governmental agency or entity.”

Enacted in 2010, the DFA contains a number of whistleblower protection provisions, including anti-retaliation projections. In addition to protections, the DFA established the SEC Whistleblower Program, which offers monetary awards to whistleblowers. Through the program, qualified whistleblowers are entitled to a monetary award of 10-30% of funds recovered by the government.

On June 24, the SEC issued a million dollar award to a whistleblower, continuing a record breaking fiscal year for the program. Since the 2021 fiscal year began on October 1, 2020, the SEC has awarded approximately $376 million to 73 individuals – both fiscal year records. Overall, the SEC has awarded more than $938 million to 179 individuals since issuing its first award in 2012.

SEC Chair Gary Gensler will be delivering keynote remarks at the National Whistleblower Center’s virtual event celebrating National Whistleblower Day 2021. Before being confirmed as Chair of the SEC in April, Gensler pledged strong support for the SEC Whistleblower Program.


SEC Charges Broker-Dealer for Violating Whistleblower Protection Rule

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