OCIE Issues Risk Alert On Whistleblower Rule Compliance

November 9, 2016

On October 24, 2016, the Office of Compliance Inspections and Examinations (“OCIE”) of the Securities and Exchange Commission (“SEC”) issued a Risk Alert regarding examination of investment advisers’ and broker-dealers’ compliance with whistleblower rules. Recently, the SEC has brought several enforcement actions charging violations of Rule 21F-17 of the SEC’s whistleblower regulations promulgated under the Dodd-Frank Act amendments to the Securities Exchange Act of 1934. The Risk Alert follows the issuance of various cease and desist orders against various companies finding that they were not compliant with the rule.1

In the Risk Alert, OCIE advises that the SEC is examining registered investment advisers and registered broker-dealers and reviewing, among other things, compliance manuals, codes of ethics, employment agreements and severance agreements to determine whether they contain confidentiality and other provisions that would impede employees and former employees from communicating with the SEC concerning possible securities law violations. Rule 21F-17 provides that “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 is concerned that certain agreements, such as ones that limit the types of information that an employee can convey to the SEC or other authorities, or that require employees to waive their rights to individual monetary recovery with reporting information to the government, could have a chilling effect that undermines the purpose of Rule 21F-17.

In light of these developments, we recommend that our clients take this opportunity to review their compliance manuals, codes of ethics, employment agreements and severance agreements in respect of whistleblower compliance and consider revising these documents and/or advising employees separately of their rights. If you have any questions about the Risk Alert or your obligations under Rule 21F-17, please contact Anne C. Patin at (212) 574-1516 or patin@sewkis.com or Julia C. Spivack at (212) 574-1373 or spivack@sewkis.com


1 See, e.g., In the Matter of KBR, Inc., Release No. 74619 (April 1, 2015); In the Matter of Merrill Lynch, Pierce, Fenner & Smith Incorporated, et al., Release No. 78141 (June 23, 2016); In the Matter of BlueLinx Holdings Inc., Release No. 78528 (Aug. 10, 2016); In the Matter of Health Net, Inc., Release No. 78590 (Aug. 16, 2016); In the Matter of Anheuser-Busch, Release No. 78957 (Sept. 28, 2016).