Court Rules Definitively on Confidentiality for SEC Whistleblowers in 2017

  • Home
  • News
  • Court Rules Definitively on Confidentiality for SEC Whistleblowers in 2017
Man in front of a sunset, representing confidentiality for SEC whistleblowers

Decision on Confidentiality for SEC Whistleblowers

A U.S. District Court in the Southern District of California has recently ruled on the validity of a SEC whistleblower’s defense to the enforcement of a company’s confidentiality agreement. In the decision, the Court accepts the validity of a public policy defense to a limited whistleblower disclosure of confidential information concerning securities fraud.

The case arose after a whistleblower sued the company for retaliation. The company brought counterclaims against the whistleblower-plaintiff for breach of the confidentiality clause of its employment agreement. The whistleblower then asserted the public policy in favor of whistleblowing as a defense.

These issues have been more frequently litigated in the context of the False Claims Act, where whistleblowers (known as relators) are required to bring a qui tam lawsuit through the judicial system.  This litigation process permits companies to bring counterclaims, unlike standard submissions to the SEC whistleblower program where the whistleblower is not involved in the government’s enforcement action.

To briefly summarize the important areas of the decision for securities whistleblowers:

  • The public policy exception allowing breach of a confidentiality agreement by a whistleblower applies to SEC whistleblowers providing information to the U.S. Government.
  • The whistleblower has a public policy defense at least allowing a limited removal of documents from the company in order to demonstrate the fraud and protect against document destruction.
  • A SEC whistleblower retaliation complaint can rely on confidential information that is reasonably necessary to demonstrate the retaliation.
  • The whistleblower defense allowed does not offer protections for breach of the confidentiality agreement when a whistleblower provides confidential information to the press.

The ruling strengthens the protections for SEC Whistleblowers.  The SEC has independently pursued civil enforcement actions against companies recently both for retaliation against whistleblowers as well as impeding communications from SEC whistleblowers through a variety of tactics.

Are SEC whistleblowers confidential?

Under the SEC Whistleblower Program, whistleblowers have the option to remain anonymous as long as they are represented by an attorney. Whistleblowers who do choose to reveal their identity to the SEC are also protected by confidentiality provisions. The SEC takes measures to keep the identities of whistleblowers confidential and does not disclose this information to the public.

Do NDA’s Apply to Whistleblowers?

Non-Disclosure Agreements (NDAs) are typically enacted to restrict individuals from disclosing confidential information learned in their professional tenure.  However, NDAs may not apply when there is whistleblowing.

Legal protections often override the restrictions imposed by NDAs, as they aim to promote transparency and safeguard the public interest. The specifics of whistleblower protections and the interaction with NDAs can vary based on the jurisdiction and the content of the NDA.

If you find yourself in a whistleblowing situation, it is advisable to consult with a legal professional to understand the applicable laws and regulations in your jurisdiction.