On September 29, the U.S. Securities and Exchange Commission (SEC) announced settled charges against D. E. Shaw & Co., L.P., a New York-based registered investment adviser, for violating a whistleblower protection rule by impeding whistleblowing through restrictive non-disclosure agreements.
Rule 21F-17 of the SEC Whistleblower Program bans employers from impeding an individual from blowing the whistle to the SEC on potential securities violations. To settle the charges, D. E. Shaw agreed to pay $10 million.
According to the SEC, “from at least 2011 through 2019, D. E. Shaw required new employees to sign agreements that prohibited them from disclosing confidential information to anyone outside the company unless authorized by D. E. Shaw or required by law or court order.”
The SEC further alleges that D.E. Shaw required departing employees “to sign releases affirming that they had not filed any complaints with any government agency in order for the employees to receive deferred compensation.”
“Entities employing confidentiality, separation, employment and other related agreements should take careful notice of today’s enforcement action,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “The Commission takes seriously the enforcement of whistleblower protections and those drafting or using these types of agreements should take equally serious their obligations to ensure that they don’t impede whistleblowers from contacting the Commission.”
“Protected by federal law, whistleblowers play a significant role in uncovering fraud and other illegality in the securities markets, particularly with respect to registered entities regulated by the Commission,” said Sheldon L. Pollock, Associate Director of the SEC’s New York Regional Office. “The SEC remains committed to ensuring their unfettered ability to provide information to further our investigations.”
In recent weeks, the SEC has taken a number of Rule 21F-17 enforcement actions. Notably, a September 8 action taken against Monolith Resources LLC was the first such action taken against a privately held company in this regard.
Further Reading:
SEC Charges D. E. Shaw with Violating Whistleblower Protection Rule