Whistleblower Gag Clauses and Retaliation: The Form Can Be the Problem

The Securities and Exchange Commission has challenged whistleblower gag clauses in interview forms, severance agreements and demands to notify the company about regulatory contact. If that paperwork or retaliation concerns stand between what you know and speaking about it, our whistleblower experts can work through them with you.

This page follows the agreement language the Securities and Exchange Commission has challenged, from prior approval to award waivers. Our work on reporting securities fraud to the SEC connects those concerns to the underlying evidence and the whistleblower award opportunity.

KBR Put Permission Inside the Investigation

A whistleblower gag clause can make the company investigating a complaint the gatekeeper for discussing it outside the business. In its action against KBR, the SEC alleged that the company’s internal-investigation form required permission from its law department before witnesses discussed their interviews or the subjects covered.

KBR’s compliance program received employee allegations of illegal or unethical conduct, including possible securities law violations. According to the SEC’s order, investigators interviewed employees, including those who had raised the concerns, and had witnesses sign a confidentiality statement at the start. The form sat in the company’s investigation procedures manual, even though company policy did not require its use.

The statement made its purpose sound reassuring. Its actual instruction, reproduced in the SEC’s order, was:

The Securities and Exchange Commission said it knew of no instance in which KBR had actually prevented an employee from contacting the agency or enforced the restriction. It nevertheless concluded that the wording impeded communication. The agency challenged the form itself. We call KBR’s approach an investigation with a gatekeeper.

KBR agreed to a $130,000 civil penalty and amended the statement to make clear that reporting possible federal-law violations to government agencies required neither company authorization nor notice. It also agreed to make reasonable efforts to contact affected employees who had signed the earlier version.

GQG’s Reporting Permission Conflicted With Its Gag Clauses

A notice requirement can put the company into a conversation that the whistleblower initiates with a regulator. The SEC’s order concerning GQG Partners shows how that requirement can appear alongside other language permitting contact with the agency.

The Securities and Exchange Commission alleged that GQG asked employment candidates to sign nondisclosure agreements during recruiting or onboarding. Those agreements prohibited disclosure of confidential information, including to government agencies. Requests for information triggered a duty to notify GQG unless prohibited by law and consult about resisting or narrowing the request.

According to the order, a separate employee confidentiality agreement and a whistleblower policy allowed reporting to the SEC. But the candidate agreements contained provisions preserving their restrictions or giving them priority over less restrictive terms. The SEC alleged that the conflicting language itself created an obstacle to reporting.

The same order addressed a former employee’s settlement agreement. The agency alleged that it allowed reporting and awards but required the employee to deny knowing facts that could support a government investigation and withdraw inconsistent earlier statements. Permission appeared in one part of the agreement. The allegation disappeared in another.

For someone in compliance or human resources, the useful comparison is between the policy the business promotes and the agreement it actually presents. We examine those documents together, including which version applied and whether a later agreement left an earlier restriction standing.

Customer Releases Can Restrict Voluntary SEC Contact

Reporting restrictions also reach brokerage customers and investment-advisory clients. In its action against J.P. Morgan Securities, the SEC alleged that a release allowed clients to answer the agency’s questions while restricting them from starting the conversation.

The order described releases regularly requested from certain clients receiving a credit or settlement worth more than $1,000. The alleged confidentiality requirement covered the agreement and information relating to the account. Its exception allowed responses to regulatory inquiries, leaving voluntary reports outside that permission.

J.P. Morgan Securities agreed to an $18 million civil penalty, far larger than KBR’s penalty for its interview form. The firm revised the release and contacted affected clients about their ability to communicate with regulators. For an employee handling customer disputes, the account adjustment and the release attached to it can show how a reporting restriction entered an ordinary service transaction.

An Award Waiver Can Leave Permission but Remove the Incentive

An award waiver can target the financial incentive for reporting possible securities violations. In its BlackRock order, the agency alleged that departing employees had to waive recovery of whistleblower incentives in exchange for separation payments and other consideration.

The agreement allowed direct contact with government agencies. The Securities and Exchange Commission nevertheless alleged that removing the financial incentive impeded participation in its whistleblower program. BlackRock revised the agreement before SEC staff contacted it and agreed to notify former employees that they could seek and obtain an SEC whistleblower award.

The SEC award rules provide an aggregate award of 10% to 30% of qualifying monetary sanctions collected, shared when more than one whistleblower receives an award in the same action. We assess the award opportunity alongside the information you can contribute and any agreement affecting it.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. That is a separate program for fraud against government money. Securities reporting follows the SEC’s own award process.

The incentive has an economic purpose. Do Corporate Whistleblower Laws Deter Accounting Fraud?, a March 2019 working paper available from MIT Sloan, found lower estimated accounting-fraud likelihood after firms became exposed to state False Claims Acts through pension-fund ownership. The study used financial-statement measures of fraud likelihood and also found a deterrence effect associated with the federal Dodd-Frank whistleblower provision. Its findings give weight to the incentive that BlackRock’s challenged agreement asked departing employees to surrender.

GPB Capital’s Agreements Followed Concerns About Investor Money

The Securities and Exchange Commission’s complaint against GPB Capital Holdings tied restrictive agreements to employees who could explain the business behind the investor payments. The agency alleged that a senior employee had raised concerns internally about using investor funds to make distributions to investors before signing a transition agreement.

The complaint reproduced this provision:

The SEC alleged that another senior employee’s separation agreement required immediate notice to GPB about regulatory contact. It also alleged that this wording was absent from other agreements used at the same time. If retaliation is part of your concern, that belongs in the conversation with us and securities whistleblower counsel too.

The Agreement Belongs Beside the Evidence

The documents that explain a gag clause include the signed agreement, the investigation instructions and the policies in force when the company used them. KBR’s interview form and GQG’s competing confidentiality terms show why reading a single reassuring sentence can miss the restriction elsewhere.

The underlying securities-fraud evidence still matters. In an accounting department, that can mean ledger entries, reconciliations, estimates and report versions. Audit-committee minutes and investigation instructions can connect the original concern to the company’s response. GPB’s complaint makes that connection concrete: the employees’ concerns involved the source of money paid to investors.

We work through your internal reporting history with you, connecting what you raised to the documents and people involved. Questions about anonymity and an agreement’s effect belong in that conversation, with a team that understands both the securities evidence and the concerns behind the call.

When the Agreement Is Part of Your Concern

If you know about securities fraud and an interview form, separation agreement or award waiver is part of the story, speak with our whistleblower experts about the agreement and what you know. We connect the company paperwork to the securities evidence, bring in securities whistleblower lawyers who understand reporting restrictions, and work alongside you to build your strongest SEC whistleblower case.