Photo by Don Ramey Logan
In a significant move aimed at reinforcing its commitment to protecting whistleblowers, the Securities and Exchange Commission (SEC) has announced charges against seven public companies for violations of the Whistleblower Protection Rule. The SEC revealed that these companies used employment, separation, and other types of agreements that obstructed whistleblowers from reporting potential misconduct to the SEC. As part of the settlements, these firms collectively agreed to pay over $3 million in civil penalties.
Among the companies involved, Acadia Healthcare Company, Inc. faced the largest penalty, agreeing to pay $1,386,000. Other companies included a.k.a. Brands Holding Corp., which settled for $399,750; AppFolio, Inc., agreeing to a $692,250 penalty; and TransUnion, which will pay $312,000. Additional penalties were imposed on IDEX Corporation ($75,000), LSB Industries ($156,000), and Smart for Life, Inc. ($19,500). Each company was found to have implemented contractual clauses requiring employees to waive their rights to potential whistleblower awards—an act that directly violates SEC regulations.
The charges stem from the violation of Rule 21F-17(a), a key regulation under the Dodd-Frank Wall Street Reform and Consumer Protection Act, which prohibits any action that prevents an individual from communicating with the SEC regarding possible securities law violations. The whistleblower program, which was established as part of the Dodd-Frank Act, serves as a vital tool for maintaining transparency and accountability in the financial markets by incentivizing individuals to report wrongdoing.
Jason J. Burt, Director of the SEC’s Denver Regional Office, emphasized the importance of protecting whistleblowers. “The SEC’s whistleblower program strengthens market integrity by providing protection and incentives for those who come forward and report potential violations of the securities laws,” Burt stated. He added that requiring employees to waive their rights to whistleblower rewards “severely impedes” individuals from coming forward with information, undermining the SEC’s ability to effectively enforce securities laws.
The SEC also highlighted that the companies charged have agreed to remediate the violations by amending the problematic agreements and ensuring they are compliant with whistleblower protection rules in the future. This commitment marks a critical step toward safeguarding employees’ rights to report misconduct without fear of retaliation or loss of potential financial rewards.
Creola Kelly, Chief of the SEC’s Office of the Whistleblower, underscored the importance of maintaining open communication between potential whistleblowers and the SEC. “Ensuring that potential whistleblowers can communicate directly with the Commission is a critical part of the SEC’s oversight mandate,” Kelly noted. The SEC has increasingly focused on fostering an environment where whistleblowers feel empowered to report wrongdoings without facing impediments from their employers.
The SEC’s ongoing investigation is being led by Eric Day from the SEC’s Denver Regional Office, with assistance from other key staff members, including Helena Engelhart Bean and the team from the Office of the Whistleblower. The investigation is supervised by Danielle R. Voorhees, Nicholas P. Heinke, and Mr. Burt.
This latest enforcement action serves as a reminder of the SEC’s dedication to maintaining transparency and accountability in U.S. financial markets by ensuring that whistleblowers have the necessary protections and incentives to report violations. It also signals a strong message to companies that any efforts to impede whistleblowers from coming forward will be met with significant penalties. As the investigation continues, the SEC remains vigilant in ensuring full compliance with whistleblower protection rules and preserving the integrity of the market.
To access SEC press statement please click here
