When the Securities and Exchange Commission fined Monolith Resources $225,000 in September for anti-whistleblower language in its separation agreements, the agency said the company violated the law even though the contract made it clear employees were free to report suspected law violations to the federal government.
What the contract language didn’t permit, though, was employees accepting a monetary award in exchange for their information. That restriction violated Rule 21f-17 of the Dodd-Frank Act, which prohibits companies from executing agreements that do anything to discourage, let alone prohibit, employees from disclosing suspected wrongdoing.
“We take compliance with Rule 21F-17 very seriously,” Gurbir Grewal, the SEC’s enforcement chief, told the New York City Bar this week at a compliance event.
Monolith’s violation is notable in another respect: the company is private.
“Both private and public companies must understand that they cannot take actions or use separation agreements that in any way disincentivize employees from communicating with SEC staff about potential violations of the federal securities laws,” the SEC said when it announced its action against Monolith. “Any attempt to stifle or discourage this type of communication undermines our regulatory oversight and will be dealt with appropriately.”
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