Summary
On January 16, the Securities and Exchange Commission (SEC) announced an $18 million settlement order (Order) with J.P. Morgan Securities LLC (JPMS) that finds that the language of release agreements JPMS entered into with clients violated the Securities and Exchange Act of 1934 (Exchange Act) Rule 21F-17(a)–a rule designed to protect potential whistleblowers. The Order serves as a reminder to investment advisers and broker-dealers to ensure client and employee agreements do not contain language that could be interpreted to impede a person’s ability to report matters to the SEC. Confidentiality provisions in client and employee agreements should explicitly exclude communications to governmental and/or regulatory authorities.
Rule 21F-17(a)
The sole violation stated in the Order is for a violation of Exchange Act Rule 21F-17(a). The rule 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, including enforcing, or threatening to enforce, a confidentiality agreement (other than agreements dealing with information covered by § 240.21F–4(b)(4)(i) and § 240.21F–4(b)(4)(ii) of this chapter related to the legal representation of a client) with respect to such communications.
That rule is intended to “encourag[e] individuals to report to the Commission.” Securities Whistleblower Incentives and Protections Adopting Release, Release No. 34-63434 (June 13, 2011).
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