It’s been a busy week for whistleblower cases. The latest is a case against SandRidge Energy for using severance agreements that impeded employees from contacting the Securities and Exchange Commission.
In response to Dodd-Frank, the SEC adopted Rule 21F-17 in August 2011, which provides:
(a) No person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement . . . with respect to such communications.
Sandridge’s severance agreements stated that the former employee could not
at any time in the future voluntarily contact or participate with any governmental agency in connection with any complaint or investigation pertaining to the Company, and [may] not be employed or otherwise act as an expert witness or consultant or in any similar paid capacity in any litigation, arbitration, regulatory or agency hearing or other adversarial or investigatory proceeding involving the Company.
A second provision had the former employee agree “not to make any independent use of or disclose to any other person or organization, including any governmental agency, any of the Company’s confidential, proprietary information unless [the employee] obtain[ed] the Company’s prior written consent.”
A third provision required the former employee to “not at any time in the future defame, disparage or make statements or disparaging remarks which could embarrass or cause harm to SandRidge’s name and reputation or the names and reputation of any of its officers, directors, representatives, agents, employees or SandRidge’s current, former or prospective vendors, professional colleagues, professional organizations, associates or contractors, to any governmental or regulatory agency or to the press or media.”
Three bad provisions cost SandRidge $1.4 million.
Not really SandRidge. It’s in bankruptcy. It’s creditors are going to have add this unsecured claim in the bankruptcy proceedings.
SandRidge caught the attention of the SEC because it had included a severance agreement in an SEC filing. The SEC asked the company to change the agreements and it did so. But there were still a few hundred agreements out there.
Including for one employee that the SEC tried to interview to discuss his departure. He cited the severance agreement as a reason he was unable to speak with the SEC. The bad language turned from a technical violation into an actual impediment.
It turns out that the employee had serious concerns about how SandRidge was calculating oil and gas reserves. The company ended up firing him on April 1, 2015. While negotiating the severance agreement his lawyer asked for the unlawful provisions to be removed. This was two month after the KBR case on unlawful severance agreements.
SandRidge makes four cases over the past 18 months on severance agreements that violate Rule 21F-17.
Sources:
- Company Settles Charges in Whistleblower Retaliation Case
- SEC Order Against SandRidge Energy
- Rule 21F-17
- Company Paying Penalty for Violating Key Whistleblower Protection Rule – BlueLinx
- SEC Action for Stifling Whistleblowers in Confidentiality Agreements – KBR
- The SEC Strikes Back Again on Whistleblower Pretaliation – NeuStar
