SEC Charges BlackRock For Removing Whistleblower Incentives

BlackRock coerced departing employees into signing separation agreements waiving their ability to obtain whistleblower awards.

The US Securities and Exchange Commission (SEC) has fined New York-based asset manager BlackRock Inc. $340,000 to settle charges that it improperly used separation agreements in which departing employees were coerced into waiving their ability to obtain whistleblower awards.

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According to the SEC, more than 1,000 departing BlackRock employees signed separation agreements containing offensive language stating that they “waive any right to recovery of incentives for reporting of misconduct” in order to receive their monetary separation payments from the firm.

Separation Agreements

BlackRock added the waiver provision in October 2011 after SEC adopted its whistleblower program rules, and the firm continued using it in separation agreements until March 2016.

Anthony S. Kelly, Co-Chief of the SEC Enforcement Division’s Asset Management Unit, commented: “BlackRock took direct aim at our whistleblower program by using separation agreements that removed the financial incentives for reporting problems to the SEC. Asset managers simply cannot place restrictions on the ability of whistleblowers to accept financial awards for providing valuable information to the SEC.”

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BlackRock consented to the SEC’s order without admitting or denying the findings that it violated its rules and regulations. The firm has voluntarily revised its separation agreement and taken a number of remedial actions, including the implementation of mandatory yearly training to summarise employee rights under the SEC’s whistleblower program.

Jane Norberg, Chief of the Office of the Whistleblower, added: “This enforcement action against BlackRock underscores our ongoing commitment to ensure the lines of communication between whistleblowers and the SEC remain unimpeded.  Companies should review and revise their agreements that stifle whistleblowers from reporting to the SEC.”

Whistleblower Awards

Whistleblowing has become a fixture of multiple US regulatory regimes, including the SEC, which has deployed programs or rewards to individuals in a bid to help support or streamline investigations. The whistleblower program was originally established by Congress to help incentivise whistleblowers with specific, timely and credible information about federal securities law violations to report to SEC.

Whistleblowers may find themselves eligible for an award when they voluntarily provide the SEC with unique and useful information that leads to a successful enforcement action.

Last August, the SEC reported that it had surpassed the $100 million threshold since its inception over 4 years ago.


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