Securities Litigation

An October 27 letter from Rep. Maxine Waters and seven other House Democrats (from the Financial Services & Oversight Committee) asked the SEC to double down on scrutiny of employer confidentiality agreements that might violate whistleblower protections. Whistleblower and Enforcement staff from the Commission already were focused on the issue through Enforcement's Foreign Corrupt Practices Act ("FCPA") section, "actively looking out" for improper agreements and threatening a "hard line" reaction to them. SEC Rules prohibit any person (not just SEC-reporting public companies) from acting to impede whistleblowers from reporting to the Commission. That prohibition expressly includes confidentiality agreements. 17 C.F.R. § 240.21F-17(a). Dodd-Frank expanded the SEC's administrative-tribunal jurisdiction beyond the securities-market and public-company actors it regulates directly, subjecting virtually any employer to potential administrative enforcement proceedings. Any employer using employee confidentiality provisions - whether in employment agreements, policy manuals, severance agreements or otherwise - should give them a "tune up." In a related action, FINRA required its member broker-dealers to include a "whistleblower clause" in their settlement and confidentiality agreements in arbitration proceedings. NTM 14-40 (Oct. 9, 2014); FINRA Requires New "Whistleblower" Clause in Settlement Agreements (Oct. 22, 2014), here. The Congressional letter is here. Thomas K. Potter, III (tpotter@burr.com) is a partner in the Securities Litigation Practice Group at Burr & Forman, LLP. Managing Partner of the Nashville office, Tom is licensed in Tennessee, Texas and Louisiana. He has over 28 years' experience representing financial institutions in litigation, regulatory and compliance matters. © 2014 by Thomas K. Potter, III (all rights reserved)