The U.S. Securities and Exchange Commission (SEC) is clamping down on companies that attempt to restrict whistleblowers. The SEC is scrutinizing employment agreements used by the companies. For example, the SEC fined Health Net Inc., a health insurer whose severance agreements allegedly limited former employees’ rights to whistleblower fees. Health Net agreed to pay a $340,000 penalty. It was alleged that the company impeded the agency’s whistleblower program by requiring exiting employees to waive their right to a monetary award for providing tips to the agency. This came just six days after the SEC issued its first fine over such waivers against Atlanta building products distributor BlueLinx Holdings Inc.
Antonia Chion, an associate director of the SEC’s Enforcement Division, highlighted the importance of financial incentives to the whistleblower program as she announced the latest charges in a statement saying:
Financial incentives in the form of whistleblower awards, as Congress recognized, are integral to promoting whistleblowing to the Commission. Health Net used its severance agreements with departing employees to strip away those financial incentives, targeting the Commission’s whistleblower program.
The SEC’s rules that enable whistleblowers to collect 10 to 30 percent of the total award when giving information that leads to an action recovering at least $1 million, known as Rule 21F-17, were passed in August 2011 as part of the Dodd-Frank Act.
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