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SEC Bolsters Whistleblowers

(The Wall Street Journal, April 2, 2015)

The SEC gave a boost to corporate whistleblowers, reaching the first settlement with a company accused of muzzling tipsters through restrictive employment agreements. Engineering and construction company firm KBR Inc. agreed to settle allegations that the company required witnesses in internal investigations to sign confidentiality agreements that could have kept them from reporting possible securities law violations to outside authorities. The agreement is expected to have broad ramifications in how other companies draft employment agreements.

KBR’s $130,000 settlement indicates the SEC’s broader probe into whether companies are stifling corporate whistleblowers is heating up. The agency has recently sent letters to several companies asking for years of nondisclosure agreements, employment contracts, and other documents. The SEC enforcement director Andrew Ceresney said the agency has a number of ongoing investigations that involve companies silencing whistleblowers in violation of the agency’s rules. “We will vigorously enforce this provision,” he said.

There are increasingly big dollars at stake for tipsters, as prosecutors and regulators are dangling larger amounts in hopes of uncovering bad behavior. In September, the SEC announced that an unidentified informer would collect a $30 million reward.

Comment: Whistleblower cases are varied depending on perceived violations. On March 30, 2015, The Seattle Times published an article, “Microsoft pair claim ‘hostess bar’ expense queries led to firing.” Two former high-level managers have sued Microsoft alleging that “their careers were derailed after they reported suspicious corporate expenses filed by an employee.” They contend they were wrongfully terminated after the reporting concerns that a subordinate was improperly using company cash at South Korean “hostess bars” for services that may have included prostitution. Microsoft has denied the allegations. This is a pretty serious charge and I trust justice will prevail once all the facts are known.

By Roger Eigsti
Board President,
Institute for Business, Technology, and Ethics

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