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SEC Scrutinizing Contractual Impediments to Whistleblower Complaints

A sign for the Securities and Exchange Commission (SEC) is pictured in the foyer of the Fort Worth Regional Office in Fort Worth, Texas June 28, 2012. REUTERS/Mike Stone

SEC LogoSean McKessy (“McKessy”), the Securities and Exchange Commission’s (“SEC”) whistleblower chief, cautioned in-house attorneys who draft contracts incentivizing employees to report securities fraud complaints in-house instead of towards the SEC, based on articles in Law360 (subscription needed). While talking with the Georgetown College Law Center Counsel Institute, McKessy described the SEC is positively searching for creatively drafted contracts by which employees agree not to visit the SEC or regulators with complaints. The SEC is searching of these provisions in contracts for example confidentiality, separation and employment contracts. Based on McKessy, when the SEC sees an agreement that contains this type of provision, the Commission won’t pursue the organization however the attorneys who drafted it and could go to date regarding revoke the attorneys’ capacity to appear prior to the SEC. McKessy makes similar public comments previously (discussed within our publish from December 12, 2012).

The SEC might be taking these steps since it hasn’t received as numerous deserving whistleblower complaints because it had wished it might. Based on the SEC staff are accountable to Congress, the SEC received 3,238 whistleblower tips in 2013, 3,001 this year and just 334 over the past four several weeks of 2011, following the program was initially implemented. Both McKessy and Christopher Ehrman, the Commodity Future Buying and selling Commission whistleblower chief, denied any dissatisfaction with the amount of tips the SEC receives, that they say typically is roughly nine or ten tips each day. Additionally they appear at first sight quite happy with the caliber of the guidelines they receive which many are becoming enforcement actions.

Although McKessy managed to get plain that provisions prohibiting employees from approaching the SEC are forbidden, he didn’t go to date regarding claim that employers cannot encourage (or perhaps require) internal reporting of illegal conduct. While employers (as well as their counsel) have apparent interests in encouraging – otherwise requiring – internal reporting of misconduct, they have to try not to hamper an employee’s capability to report such misconduct straight to the SEC.



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