Dive Brief:

• Seven companies on Monday settled civil complaints brought by the Securities and Exchange Commission alleging they imposed employment, separation and other employee agreements that violated rules “prohibiting actions to impede whistleblowers from reporting potential misconduct to the SEC.”
• The penalties ranged from $19,500 to $1.39 million, the latter paid by Acadia Healthcare, which operates 258 behavioral healthcare facilities in 38 states. Acadia had 98 agreements with employees between 2019-2023 requiring them to waive their rights to financial awards “for participating in an investigation by a government agency,” according to the SEC’s administrative filing.
• The SEC has been increasing oversight of agreements companies require of employees, customers and others with an eye to the protections Congress gave whistleblowers under the 2010 Dodd-Frank Act.

Dive Insight:

Beyond its language prohibiting government financial awards, Acadia Healthcare also entered into 56 separation and settlement agreements that “required employees to waive their right to file a complaint with any federal government agency,” the SEC said.

Acadia “understands the importance of regulatory requirements and worked quickly to resolve this issue with the SEC,” the company, which is based in Franklin, Tenn., said in an email to Legal Dive.

Among some of the other civil penalties announced Monday:

• AppFolio, a California-based software company, agreed to pay $692,250
• a.k.a. Brands Holding of San Francisco agreed to pay $399,750
• TransUnion, the Chicago-based credit-reporting company, agreed to pay $312,000

TransUnion said the settlement “reflects the seriousness with which we take our commitment to regulatory compliance. We voluntarily assisted with the SEC’s work and are likewise making voluntary changes to ensure employees and contractors better understand their rights and responsibilities, as set forward in the agreement,” the company said Monday in an email.

“The SEC’s engagement on this matter reflects what good regulatory supervision can look like. They identified a clear objective, offered TransUnion an opportunity for voluntary, proactive participation and worked collaboratively to resolve the matter.”

AppFolio and a.k.a brands did not immediately respond to emails seeking comment.

“Among other things, these companies required employees to waive their right to possible whistleblower monetary awards,” Jason Burt, director of the SEC’s Denver regional office, said in the statement. “This severely impedes would-be whistleblowers from reporting potential securities law violations to the SEC.”

To boost its enforcement efforts, the SEC may pay voluntary whistleblowers an award for timely and credible information that leads to a successful enforcement case. The awards range from 10-30% of money collected when a penalty exceeds $1 million.

For the 2023 fiscal year, the SEC said it had received more than 18,000 whistleblower tips, a record number and about 50% more than the prior record of 12,300 in fiscal 2022. The agency’s Whistleblower Program paid nearly $600 million in awards last fiscal year, the highest one-year amount.

In January, JP Morgan Securities LLC agreed to pay an $18 million civil penalty to settle charges that it required retail clients to sign confidential release agreements if they’d gotten a credit or settlement above $1,000 from the firm. Those agreements allowed JP Morgan clients to respond to inquiries from the SEC but did not permit them to contact the agency voluntarily.

“Whether it’s in your employment contracts, settlement agreements or elsewhere, you simply cannot include provisions that prevent individuals from contacting the SEC with evidence of wrongdoing,” the director of the SEC’s enforcement division said in a press release announcing the settlement.

Many of the agreements that run afoul of the SEC whistleblower rules apply to company efforts to protect their information without including carve-outs to permit former employees to report potential misconduct to securities regulators.

“One thing that I think is surprising to folks is that it really is, and can be, just about a documentary violation,” Sheri Adler, a partner with Troutman Pepper, said in a February podcast on employment and separation agreements, Legal Dive reported.

“It’s clear from the enforcement actions that an individual doesn’t actually have to be impeded from reporting in order for the SEC to charge a company with a rule violation.”