The SEC has accused an alleged securities fraudster of conditioning returns of shareholder funds on agreements that prohibited the investors from communicating with the SEC. According to the SEC, certain suspicious investors received a refund of the money invested upon executing a Stock Purchase Agreement and/or Settlement Agreement that prohibited them from communicating with the SEC or any other governmental agency. The defendants also sued two of the investors for violating this provision, claiming that speaking with the SEC would jeopardize the entire enterprise including the current stock valuation. The whistleblower rules prohibit any actions 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.”
OUR TAKE: Hire a lawyer that actually knows the law. It’s pretty clear that the confidentiality provisions violated the whistleblower rules. To attempt to enforce the illegal provisions through a lawsuit is doubling down on the malpractice.