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Dedicated Client Advocacy

The SEC Emphasizes Protection of Whistleblowers

The Securities and Exchange Commission ("SEC") has been investigating businesses for violations of Rule 21F-17, which provides whistleblowers with protections against retaliation by their employers. Specifically, the SEC is investigating companies "using confidentiality agreements to prevent employees from communicating with the SEC about potential securities law violations."1 Recently, the SEC settled a case against Kellogg, Brown & Root ("KBR"), a former Halliburton subsidiary, for using such contract language. While the SEC did not find that KBR ever enforced the illegal language in its confidentiality agreement, it found that the language could have a "potential chilling effect" and could discourage employees from bringing claims, in violation of SEC rules. As a result of the settlement, KBR agreed to pay $130,000 and change its employee confidentiality agreement to remove the detrimental language.2

The SEC had been investigating KBR's potential violation of Rule 21F-17 for over a year before the two parties reached a settlement. Since 2005, former employee, Harry Barko ("Barko"), had been trying to bring a complaint under the False Claims Act, based on his allegations that KBR "defraud[ed] the U.S. government while administering military contracts in Iraq."3 The confidentiality agreement at issue required employees like Barko to speak with KBR lawyers before discussing any internal information of the company. The KBR agreements also threatened employees with discipline or termination if they discussed too much information without first speaking to the company's legal department.4

The whistleblower provision in the 2010 Dodd-Frank Act has helped bring many securities violations to light and this settlement represents a hearty reinforcement of the protections afforded to whistleblowers. Barko's attorney said that the settlement negotiated between the SEC and KBR marked an "historic day for whistleblowers."5 When the SEC began its investigation into KBR, Barko's attorney argued that "there is an overriding public interest for the SEC to stop these practices, not just by KBR, but by any publicly traded company that might be using the attorney-client privilege to cover up fraud."6

Critics of the SEC's investigations into employer-employee agreements argue that Rule 21F-17 "raises significant questions concerning the boundaries between SEC investigative powers and corporate interests in maintaining confidentiality and protecting the attorney-client privilege."7 They believe that the Rule gives the SEC unfair access to information such as trade secrets or patents. However, the SEC wants to ensure that whistleblowers feel they are able to bring claims of potential securities violations to the attention to regulators without fear of potential retaliation. The SEC head of enforcement, Andrew Ceresney, has made it clear that the SEC "will vigorously enforce [Rule 21F-17]."8 As the SEC continues to protect whistleblowers' rights, this issue will likely be addressed in more detail.

The legal team at SFMS has substantial experience litigating securities and whistleblower related matters. If you have any questions regarding this subject or this posting, please contact Valerie Chang ([email protected]) or Michael Ols ([email protected]). We can also be reached toll-free at (866) 540-5505.

Shepherd Finkelman Miller & Shah, LLP is a law firm with offices in California, Connecticut, Florida, New Jersey, New York, Pennsylvania and Wisconsin. SFMS also maintains an affiliate office in London, England, and is an active member of Integrated Advisory Group (, which provides us with the ability to provide our clients with access to excellent legal and accounting resources throughout the globe. For more information about our firm, please visit us at










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