On January 17, 2017, BlackRock, Inc. (“BlackRock”), a New York-based asset management company, settled charges by the United States Securities and Exchange Commission (“SEC”) relating to BlackRock’s separation agreements with employees. According to the SEC, BlackRock required employees to sign separation agreements in which the employees waived their rights to collect any whistleblower awards as a precondition to receiving their separation payments. BlackRock neither admitted nor denied the SEC’s allegations, but agreed to pay a $340,000 penalty to settle them. Martin O’Sullivan,
SEC Settles with BlackRock over Whistleblower Waivers, Law360 (Jan. 17, 2017).
The relevant provisions stated that the departing employee would “waive any right to recovery of, incentives for reporting of misconduct, including, without limitation, under the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Sarbanes-Oxley Act of 2002.”
In the Matter of BlackRock, Inc., Admin. Proc. No. 3-17786 (Jan. 17, 2017) (“Order”). According to the SEC, BlackRock added this language in 2011, after the SEC implemented the Whistleblower Provisions of Section 21F of the Securities Exchange Act of 1934. Order at 2.
See also Press Release, SEC,
BlackRock Charged with Removing Whistleblower Incentives in Separation Agreements, Jan. 17, 2017,
https://www.sec.gov/news/pressrelease/2017-14.html (“Press Release”). The SEC therefore contended that the separation agreements improperly restricted whistleblowers’ incentives to provide information to the SEC.
See Press Release.
BlackRock removed the language from its separation agreement in March of last year, before being contacted by the Commission about this matter.
See Order. It now provides all employees with mandatory trainings that summarize each employee’s rights under the Commission’s Whistleblower Program. Order at 3. While the Commission conceded that it is unaware of any BlackRock employee who did not report a potential securities law violation to the Commission staff, it proceeded with the action because of its view that the separation agreement “directly targeted the SEC’s whistleblower program by removing the critically important financial incentives that are intended to encourage persons to communicate directly with the Commission staff about possible securities law violations.”
Id.
In announcing the settlement, the Chief of the Office of the Whistleblower at the SEC directed other companies to examine whether they are engaged in similar practices in light of the SEC’s “ongoing commitment to ensure the lines of communication between whistleblowers and the SEC remain unimpeded.” Press Release. Though the assessed monetary penalty was nominal, the Order underscores the Commission’s focus on protecting its whistleblower program, including by carefully scrutinizing employers’ policies and practices.
