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SEC Risk Alert Warns About Whistleblower Policies and Practices

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The SEC’s Office of Compliance Inspections and Examinations has issued a Risk Alert notifying advisers and broker-dealers that examination staff will examine whether agreements and other documents limit whistleblowers in violation of the Dodd-Frank Act.  The staff will examine compliance manuals, codes of ethics, and employment and severance agreements to determine whether any provisions directly or indirectly impede an employee or former employee from communicating potential securities laws violations to the SEC.  For example, the staff will assess whether confidentiality agreements include exceptions for SEC reporting or provisions requiring an employee to represent that s/he has not assisted with an investigation.  The Risk Alert recommends immediate remedial measures including revising documents and notifying both current and former employees about their unrestricted right to report to the SEC.   The SEC has brought several cases during the last year alleging that a registrant’s practices violated Dodd-Frank’s whistleblower provisions.

OUR TAKE: Our most recent C-suite survey reported that 91% of respondents have not changed their compliance programs due to whistleblower concerns.  (See https://cipperman.com/wp-content/uploads/2016C-SuiteSurveyResuts.pdf).  Compli-pros should add policies and procedures that ensure that whistleblowers are in no way impeded by company documents.  Then, firms should test the policies by reviewing agreements and interviewing current and former employees.

https://www.sec.gov/ocie/announcement/ocie-2016-risk-alert-examining-whistleblower-rule-compliance.pdf

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