SEC cracks down on severance agreements that deter whistleblowing

Tue Aug 16, 2016 5:58pm EDT
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By Sarah N. Lynch

WASHINGTON (Reuters) - For the second time in less than a week, U.S. securities regulators on Tuesday filed civil charges against a company for inserting language into its severance agreements that prevents outgoing employees from reaping the benefits of government whistleblower awards.

The Securities and Exchange Commission said Health Net Inc will pay $340,000 to settle the charges without admitting or denying wrongdoing.

A statement issued by the health insurer, which has since merged with Centene Corp, said that Centene was not a party to the issues at the heart of the SEC's case.

The SEC said it did not have any evidence that Health Net employees were deterred from reporting to the agency as a result of the severance agreements.

However, the SEC said the agreements, signed by about 600 employees, removed "the critically important financial incentives" designed to encourage would-be whistleblowers to come forward by requiring them to waive "any right to any individual monetary recovery" arising from a government proceeding.

The case comes on the heels of another matter the SEC filed against Atlanta-based building products maker BlueLinx Holdings Inc., also in connection with severance agreements that required departing employees to waive their rights to government bounties.

BlueLinx agreed to pay a $265,00 penalty, settling also without admitting or denying the charges, the SEC announced on Aug. 10. A spokesperson could not be immediately reached for comment.

The SEC in 2011 adopted rules designed to encourage people to come forward with tips about possible corporate wrongdoing.   Continued...

A sign for the Securities and Exchange Commission (SEC) is pictured in the foyer of the Fort Worth Regional Office in Fort Worth, Texas June 28, 2012. REUTERS/Mike Stone