By Scott Flaherty, From The Litigation Daily
The U.S. Securities and Exchange Commission on Wednesday fined technology and engineering company KBR Inc. over confidentiality agreements that, the agency claims, could have silenced potential whistleblowers.
In a first-of-its-kind enforcement action, the SEC announced a $130,000 settlement with KBR over confidentiality statements that the former Halliburton Co. subsidiary required employees to sign if they served as witnesses in certain internal investigations.
The confidentiality pacts threatened discipline if employees discussed the internal probes, which included inquiries into possible securities law violations, without permission from KBR’s legal department. Pointing to those provisions, the SEC alleged that the agreements could keep would-be whistleblowers from speaking up.
“By requiring its employees and former employees to sign confidentiality agreements imposing prenotification requirements before contacting the SEC, KBR potentially discouraged employees from reporting securities violations to us,” SEC enforcement director Andrew Ceresney said in a statement.
The SEC noted that there was no evidence that KBR’s agreements have actually silenced whistleblowers. But, the agency said, blanket confidentiality provisions like KBR’s can have “a potential chilling effect on whistleblowers’ willingness to report illegal conduct.”
In addition to a fine, KBR agreed to change the wording of its confidentiality statements to clarify that employees aren’t blocked from—and can’t face retaliation for—going to the SEC or other agencies with information about potential violations.
KBR’s outside counsel, Craig Margolis of Vinson & Elkins, said Wednesday that the company “agreed to resolve the matter amicably with the SEC, because it recognizes the SEC’s concerns.”
Margolis insisted that KBR’s confidentiality agreements were never intended to impede potential whistleblowers, but rather to help the company retain attorney-client privilege when it comes to internal investigations. V&E’s John Wander also represented KBR in the SEC proceedings.
As The Wall Street Journal has noted, the SEC’s settlement with KBR comes at a time when the agency is heightening its scrutiny of company policies that could keep potential whistleblowers from reporting securities violations.
In the SEC’s statement Wednesday, the head of the agency’s whistleblower office, Sean McKessy, suggested that other companies could follow the example KBR set by agreeing to revise its confidentiality statements.
“Other employers should similarly review and amend existing and historical agreements that in word or effect stop their employees from reporting potential violations to the SEC,” he said.
For more on this story go to: http://www.litigationdaily.com/id=1202722357518/Courting-Whistleblowers-SEC-Targets-KBR-Secrecy-Pacts#ixzz3WNAghD9k