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SEC Cautions Attorneys Against Hush Language in Whistleblower Contracts

Sean McKessy, Chief of the U.S. Securities and Exchange Commission’s (SEC’s) Office of the Whistleblower, cautioned lawyers attending a Georgetown University Law Center Corporate Counsel Institute event against incentivizing company whistleblowers to withhold evidence of company wrongdoing from the SEC.

“[W]e are actively looking for examples of confidentiality agreements, separates agreements, employee agreements that … in substance say ‘as a prerequisite to get this benefit you agree you’re not going to come to the commission or you’re not going to report anything to a regulator.’”

McKessy, joined by Government Accountability Project’s legal director, Tom Devine, and Commodity Futures Trading Commission (CFTC) whistleblower chief Christopher Ehrman,  added that attorneys found to have drafted contracts that offer whistleblowers incentives in exchange for silence may be disciplined.

“[I]f we find that kind of language, not only are we going to go to the companies, we are going to go after the lawyers who drafted it,” McKessy said. “We have powers to eliminate the ability of lawyers to practice before the commission. That’s not an authority we invoke lightly, but we are actively looking for examples of that. “

McKessy indicated that the SEC receives an average of approximately 10 tips each day while Ehrman stated that tips received by the CFTC increased up to 60% compared to last year.
Whistleblowers who provide “original” information to the SEC about possible securities violations can earn from 10% to 30% of fines over $1 million obtained by the commission.


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