SEC Announces First Enforcement Action Involving Restrictive Language in Confidentiality Agreement under Dodd-Frank Whistleblower Program

SEC Announces First Enforcement Action Involving Restrictive Language in Confidentiality Agreement under Dodd-Frank Whistleblower Program

Apr 03, 2015

Client Alert

Brownstein Client Alert, April 3, 2015; Reprinted by the American Bar Association's Business Law Today, May 2015

On April 1, 2015, the Securities and Exchange Commission (SEC) announced its first enforcement action involving restrictive language in an employee confidentiality agreement that it contends has “the potential to stifle the whistleblowing process.” The enforcement action arose in the context of internal investigations in connection with which a company required employee witnesses to execute a form confidentiality agreement prohibiting them from discussing the internal investigations with outside parties without prior approval of its legal department. The agreement further stated that unauthorized disclosure “may be grounds for disciplinary action up to and including termination of employment.” Because the internal investigations included allegations of possible securities law violations, the SEC found that the terms of the form confidentiality agreement violated Rule 21F-17 promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act).

Click on above pdf to read entire client alert.

This alert was reprinted in the American Bar Association's Business Law Today, May 2015 issue. Click here to read the article on the American Bar Association's website.

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