Recent SEC Enforcement Action Highlights Importance of Not Impeding Whistleblower Communications with Regulators | Jones Day
As noted above, the SEC has previously brought a number of enforcement actions against various entities for violating Rule 21F-17. Specifically, these actions focused on entities attempting to prevent or discourage employees from directly contacting regulators through compliance procedures, confidentiality provisions, and severance agreements (for example by requiring employees that they forgo whistleblower rewards).
Most recently, on June 23, 2021, the SEC and a registered broker (âBDâ) with more than 600 registered representatives and 16 branches, settled an enforcement action alleging a violation of rule 21F-17 of the Exchange Act. . Specifically, BD has provided its employees with a compliance manual (âBD Manualâ) and has required each employee to agree to adhere to the policies it contains. Notwithstanding Rule 21F-17, from April 15, 2016 to at least July 2020, the BD Handbook expressly prohibited employees from communicating with a regulator without seeking prior approval from BD legal or compliance departments, noting that policy violations could result in disciplinary action. BD action. BD has also included this ban in at least two of its annual compliance training programs.
BD employees were also required to adhere to BD’s parent company code of conduct (“Parent Code”), which provided that nothing in the Parent Code should be interpreted “to restrict or interfere with any rights, freedom of expression or other protection of whistleblowers under applicable laws, regulations and requirements. ” Despite this provision, however, the BD Handbook provided that in cases where a BD policy was more restrictive than a Parent policy, employees were required to follow the more restrictive policy in the absence of express instructions to the contrary.
It is important to note that while the SEC found no instances where BD prevented an employee from speaking with the SEC or other regulator about possible violations of securities law, and found nothing to indicate that BD had enforced the BD Manual Ban to prevent related disclosure, the SEC still found that BD violated Rule 21F-17 by including the prohibition in BD’s Manual and in the materials. compliance training.
In addition to issuing a cease and desist, the SEC censored BD and fined it over $ 200,000.