On April 12, the U.S. Securities and Exchange Commission (SEC) announced settled charges against David Hansen, co-founder and former Chief Information Officer of the technology company NS8, Inc., for impeding an individual from communicating with the SEC about potential securities violations. Hansen will pay $97,523 for violating a SEC whistleblower protection rule.
NS8, now known as Cyber Litigation, Inc., was a technology company based in Las Vegas, Nevada, that offered fraud detection and prevention software. According to the SEC, in 2019, a NS8 employee reported concerns to Hansen and other officials that NS8 was overstating its number of paying customers, including in external communications to potential and existing investors. The employee told Hansen that unless NS8 addressed the issue, he would go public with his allegations.
According to the SEC, Hansen then spoke with the CEO of NS8 about the employee’s allegations. Hansen and the CEO allegedly took steps to remove the employee’s access to NS8’s computer systems, including to NS8’s customer data. The employee was then fired within a few days.
The SEC found that Hansen willfully violated Rule 21F-17(a), which prohibits taking any action to impede an individual from alerting the SEC to possible securities law violations. The rule 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.”
SEC Commissioner Hester M. Peirce dissented from the SEC’s charges because, according to her statement, “[t]he Order does not explain what, precisely, Mr. Hansen did to hinder or obstruct direct communication between the NS8 Employee and the Commission.” The Order states that Hansen “took steps to remove the NS8 Employee’s access to NS8’s IT systems.” This, in the eyes of the SEC, continues hindering the employee’s ability to communicate with the SEC about the potential violations.
The rule was adopted by the SEC in accordance with the Dodd-Frank Act, which established the agency’s highly successful whistleblower program. The SEC Whistleblower Program offers monetary awards and anti-retaliation protections to whistleblowers. Since issuing its first award in 2012, SEC has awarded approximately $1.2 billion to 256 individuals.