On Tuesday, April 12, the U.S. Securities and Exchange Commission (SEC) fined David Hansen, the former Chief Information Officer of NS8, Inc., a Las Vegas-based fraud detection and prevention software firm, approximately $100,000 for interfering with an employee’s ability to communicate with the SEC in violation of Rule 21F-17(a). The SEC alleged that Hansen violated the rule by restricting the employee’s access to NS8’s IT systems and monitoring his use of corporate computer systems following the employee providing a tip to the SEC about NS8’s corporate practices. In dissent, SEC Commissioner Hester Peirce said that the application of Rule 21F-17(a) was inappropriate in this case, arguing that restricting the tipster’s access to IT systems and monitoring their use did not impede their ability to communicate with the SEC and was a reasonable step in preventing unauthorized disclosure of NS8’s data to private parties and the media.
Rule 21F-17 (a), implemented in 2011 as part of Dodd-Frank’s reforms, provides that “no person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation,” and is one of the primary methods for protecting whistleblowers. In 2018 and 2019, an NS8 employee ascertained and ultimately, in July of 2019, raised concerns to the SEC that the company was misrepresenting the total number of paying customers in marketing materials. This employee further demanded that unless...
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