New York-based investment adviser D. E. Shaw & Co. will pay a $10 million penalty to settle charges brought by the Securities and Exchange Commission (SEC) that the company raised impediments to whistleblowing by employees.
The details: From at least 2011 through 2019, the firm required new employees to sign agreements prohibiting the disclosure of confidential corporate information to third parties unless authorized, without an exception for potential SEC whistleblowers, the agency said in a press release Friday.
Further, from at least 2011 through 2023, the firm required departing employees to sign releases affirming they had not filed any complaints with any government agency in order for them to receive deferred compensation and/or other benefits.
Compliance considerations: D. E. Shaw circulated a company-wide email in 2017 notifying employees they were neither prohibited from communicating with regulators regarding possible violations of law nor were they required to notify the firm, according to the SEC’s order. However, the firm failed to include similar whistleblower protection language in its employment agreements until 2019 and in its releases until 2023, after the agency launched its investigation.
The SEC’s whistleblower protection rules prohibit taking any action to impede an individual from communicating directly with agency staff about a possible securities law violation.
“The commission takes seriously the enforcement of whistleblower protections, and those drafting or using these types of agreements should take equally serious their obligations to ensure that they don’t impede whistleblowers from contacting the commission,” said Gurbir Grewal, director of the SEC’s Division of Enforcement, in the release.
D. E. Shaw had no comment. Without admitting or denying the SEC’s findings, the firm agreed to be censured and cease and desist from violating the whistleblower protection rule.