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SEC Probes Wealth Firms’ Whistleblower Protection

By Alex Padalka October 28, 2016

The SEC has launched an examination of whistleblower protection provisions at RIAs and broker-dealers, focusing on employment-contract clauses that prevent former employees from talking to regulators.

The regulator says it will examine various documentation, including compliance manuals, codes of ethics and employment and severance agreements, looking for language that may be in violation of whistleblower protection statutes introduced by the Dodd-Frank Act.

The SEC’s examination will focus on any contractual agreements in which employees are forced to waive their rights to monetary recovery resulting from government investigations or are limited in what they can disclose to authorities.

In addition, SEC staff will look for language that prevents employees from voluntarily talking to the regulator, forces them to get their company’s consent before sharing confidential information with the regulator, or permits employees to make such disclosures only in cases required by law, rather than voluntarily.

The SEC also says that its previous enforcement actions in whistleblower protection cases included requiring firms to revise their documents to make it clear they’re allowed to talk to regulators about possible violations and accept whistleblower awards, as well as forcing companies to issue general notices to former and current employees who had already signed employment or severance agreements about their right to do the same.

Regulators have become increasingly dependent on whistleblowers to help them root out violations at financial services firms.

The SEC has paid $107 million to 33 people providing insider information since launching its whistleblower program in 2011.

Whistleblowers have helped regulators crack down on the wealth-management space, with one insider helping Indiana’s securities regulator reach a $950,000 settlement earlier this year with JPMorgan over improper disclosures about its proprietary products.