The protection of whistleblowers has been a recurrent theme in recent SEC enforcement actions. The agency has brought a series of actions designed to protect the right of employees to report wrong doing to the Commission unimpeded by their employer. Asset manager BlackRock is the latest firm to settle with the SEC on this issue. In the Matter of BlackRock, Inc., Adm. Proc. File No. 3-17786 (January 17, 2017).
BlackRock, whose shares are listed on the NYSE, has historically entered into voluntary separation agreements with many of its departing employees. After the Commission adopted Exchange Act Rule 21F-17 the firm revised its form of separation agreement. The revision provided that the departing employee agreed to waive its recovery of incentive fees for reporting misconduct under Dodd-Frank in exchange for monetary separation payments and other consideration from BlackRock.
The new provision did not prohibit departing employees from reporting to the Commission or any other government agency regarding possible violations of law. Rather it provided that “To the fullest extent permitted by applicable law . . . you waive any right to recovery of, incentives for reporting of misconduct, including without limitation, under the Dodd-Frank . . . [and SOX] relating to conduct occurring prior to the date of this Agreement.”
Prior to being contacted by the staff in this matter BlackRock voluntarily revised its separation agreement. This was undertaken as part of a periodic review and update of its agreements, conducted in March 2016. The revision dropped the waiver language. By that date, however, 1,067 separation agreements had been executed that contained the waiver language.
BlackRock undertook remedial actions in resolving this matter. Those included yearly mandatory training that provides a summary of, and link to, a document entitled “Global Policy for Reporting Illegal or Unethical Conduct.” That document summarizes several of the rights employees have under the Commission’s Whistleblower Program. The firm also agreed to an undertaking pursuant to which it will make reasonable efforts to contact each former employee who executed a separation agreement that contained the waiver provision and provide them with a link to the document cited above. In addition, the firm will provide a statement that noting that BlackRock does not prohibit former employees from seeking and obtaining a whistleblower award from the SEC under Exchange Act Section 21F.
The Order alleges violations of Exchange Act Rule 21F-17. That Rule, designed to encourage persons to report to the SEC, provides in part that “No person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation . . .”
To resolve this action BlackRock consented to the entry of a cease and desist order based on the Rule cited in the Order. The firm will also pay a penalty of $340,000.