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SEC Targets Restrictive Language in Confidentiality Agreements

The Securities and Exchange Commission (SEC) announced that it forced KBR Inc., a Houston-based global technology and engineering company, to amend language in confidentiality agreements that it said discourages employees from going directly to the government with information about legal violations. Whistleblower protection Rule 21F-17 prohibits such provisions.

The SEC stated that KBR Inc. improperly required witnesses in its internal investigations interviews, including investigations involving allegations of possible securities law violations, to sign confidentiality statements which warned that they could be subject to discipline and even be fired if they discussed the matters with parties outside of KBR without the prior approval of KBR’s legal department.

KBR resolved the matter by agreeing to pay a $130,000 penalty, and amending its confidentiality statement by adding language which clarifies that employees are free to report possible violations to the SEC and other government agencies without approval or fear of retaliation by KBR.

“By requiring its employees and former employees to sign confidentiality agreements imposing pre-notification requirements before contacting the SEC, KBR potentially discouraged employees from reporting securities violations to us,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “SEC rules prohibit employers from taking measures through confidentiality, employment, severance, or other type of agreements that may silence potential whistleblowers before they can reach out to the SEC.  We will vigorously enforce this provision.”

If you would like additional information on the SEC’s first whistleblower protection enforcement action or other news, please click here and fill out the form.

 

 


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