SEC Dings BlackRock for Pre-taliation Clauses

The SEC fined investment firm BlackRock $344,000 this week for forcing more than 1,000 employees to sign away their whistleblower rights in severance contracts—although the story here is more about how a little remediation can go a long way.

The BlackRock error isn’t anything new: the firm had language in its severance agreements that required employees to waive their right to collect whistleblower rewards if they reported misconduct to regulators. BlackRock added the waiver provision in October 2011, after the SEC adopted its whistleblower program rules, and continued using it in separation agreements until March 2016.

That led to some unusually testy language in the SEC’s press release on Tuesday announcing the sanction.

“BlackRock took direct aim at our whistleblower program by using separation agreements that removed the financial incentives for reporting problems to the SEC,” said Anthony Kelly, co-chief of the Enforcement Division’s Asset Management Unit.  “Asset managers simply cannot place restrictions on the ability of whistleblowers to accept financial awards for providing valuable information to the SEC.”

So take that, asset managers!

The good news is that BlackRock removed the offending language last year on its own, during a routine review of corporate policies. And no evidence exists that BlackRock ever tried to enforce its pre-taliation language, nor that any ex-employees were intimidated by the language.

pre-taliationStill, BlackRock did insert its pre-taliation language after the SEC adopted its whistleblower rules. That implies an awareness that employees might want to cash out by approaching regulators, and a desire to persuade employees otherwise. That annoyed the SEC enough for the $344,000 fine.

In the grand scheme of the SEC’s other pre-taliation sanctions, this one isn’t terribly remarkable. BlackRock imposed the agreements on a relatively large number of people (1,067) compared to other companies dinged for pre-taliation, but it did discover and fix the offending language before being asked. (Ultimately the SEC did discover BlackRock’s case as part of an industry-wide inquiry the SEC conducted last year.)

For some perspective, BlackRock paid a penalty of $322 per offending contract. Compare that to SandRidge Energy, which did try to use pre-taliation clauses to pressure whistleblowers. Last month the SEC fined SandRidge $1.4 million for imposing those contracts only 546 employees. That’s $2,564 per offending contract.

So as I’ve said numerous times: pre-taliation is one of the unforced errors in corporate compliance. You can solve it with a global find-and-replace exercise that will take less than a day to fix. Companies still have plenty of other ways to prevent employees from sharing confidential information with legitimate threats like competitor companies.

We don’t know how much longer the SEC’s pre-taliation crackdown will last. Perhaps the crackdown will run its course naturally; perhaps upon arrival of the Trump Administration, new leadership at the SEC will tell the Office of the Whistleblower to cool its heels.

At least for now, however, the SEC’s message on pre-taliation seems to be getting heard.


  1. […] SEC Dings BlackRock for Pre-Taliation Clauses. […]

  2. […] January 17, 2017 | SEC Dings BlackRock for Pre-taliation Clauses […]

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