The SEC today issued its first Order under its Whistleblower Rules in quite some time, citing a registered broker-dealer with violating Rule 21F-17 of the Securities Exchange Act, which precludes conduct that could impede anyone from communicating with the Commission about potential securities laws violations.  As in prior cases, the current matter is clear there was no evidence that anyone at the firm actually was prevented from communicating with the SEC or its Staff.

The firm’s compliance manual and policies and procedures contained conflicting provisions. One provision expressly prohibited employees from communicating with regulators absent prior approval from legal or compliance. Another provision, which was commonly added to such policies and to employee handbooks following the implementation of the SEC Whistleblower Rules and, in particular, when some enforcement cases followed, noted that nothing in the policies or procedures was intended to prevent employee disclosures under the whistleblower statutes or similar types of reporting of possible violations of law. Unfortunately, a third provision in the firm’s policies attempted to generally manage any conflicts by advising employees that in the case of two policies where one was more stringent than another, employees should follow the stricter policy, absent express direction. Here, that would presumably mean not communicating with regulators absent prior approval. The SEC viewed this as a violation and determined to bring a case, which the firm settled, without admitting or denying the conduct, and agreed to pay a penalty just over $200,000.

The lesson here is that as compliance policies and procedures and employee handbooks are updated, it is important to continue to review them as a whole, to ensure that you are consistent in managing all of the issues that new language might introduce – and the SEC Enforcement Division will never give up on a source of cases, even those that have been around for a while.

Author

Amy serves as the Co-Chair of Baker McKenzie's North America Financial Regulation & Enforcement Practice, which provides clients with a full range of regulatory advice and enforcement counseling. Amy also serves on the steering committees of the Firm's Global Financial Services Regulatory and Global Financial Institutions Groups.