Without admitting or denying the Securities and Exchange Commission’s findings, oil-and-gas company SandRidge Energy has agreed to pay a penalty of $1.4 million to settle charges that it used illegal separation agreements and retaliated against a whistleblower who expressed concerns internally about how its reserves were being calculated.
“This is the first time a company is being charged for retaliating against an internal whistleblower, and the second enforcement action this week against a company for impeding employees from communicating with the SEC,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower.
The SEC order finds that SandRidge conducted multiple reviews of its separation agreements after a new whistleblower protection rule became effective in August 2011, and yet continued to regularly use restrictive language that prohibited outgoing employees from participating in any government investigation or disclosing information potentially harmful or embarrassing to the company.
The SEC’s order further finds that SandRidge fired an internal whistleblower who kept raising concerns about the process used by SandRidge to calculate its publicly reported oil-and-gas reserves. The employee had been offered a promotion, which was turned down.
Just months later, senior management concluded the employee was disruptive and could be replaced with someone “who could do the work without creating all the internal strife.” The company had conducted no substantial investigation of the whistleblower’s concerns and only initiated an internal audit that was never completed. The employee’s separation agreement also contained the company’s prohibitive language that violated the whistleblower protection rule, the SEC said.
“Ignoring a rule that protects communications between outgoing employees and the SEC, SandRidge flatly prohibited such contact in their separation agreements and at the same time retaliated against an employee who raised concerns about the company to its management,” said Shamoil Shipchandler, director of the SEC’s Fort Worth Regional Office.
Neustar enforcement action
The penalty levied against SandRidge marks the second whistleblower enforcement action this week. On Dec. 19, technology company NeuStarh agreed to pay a penalty of $180,000 to settle charges involving its severance agreements that impeded at least one former employee from communicating information to the SEC.
The SEC order finds that NeuStar violated Rule 21f-17, a whistleblower protection rule in the federal securities laws, by routinely entering into severance agreements that contained a broad non-disparagement clause forbidding former employees from engaging with the SEC and other regulators “in any communication that disparages, denigrates, maligns or impugns” the company. Former employees could be compelled to forfeit all but $100 of their severance pay for breaching the clause. These severance agreements were used with at least 246 departing employees from Aug. 12, 2011 to May 21, 2015.
NeuStar, which voluntarily revised its severance agreements promptly after the SEC began investigating, consented to the SEC’s cease-and-desist order without admitting or denying the findings. The company agreed to make reasonable efforts to inform those who signed the severance agreements that NeuStar does not prohibit former employees from communicating any concerns about potential violations of law or regulation to the SEC.
“Public companies cannot use severance agreements to impede whistleblowers from communicating with the SEC about a possible securities law violation,” Antonia Chion, Associate Director of the SEC’s Enforcement Division, said in a statement. “NeuStar’s severance agreements broadly prohibited former employees from communicating any disparaging information about the company to the SEC, and unsurprisingly at least one former NeuStar employee was chilled by such language.”
“This action demonstrates our continued strong enforcement of this critically important whistleblower protection rule and underscores our ongoing commitment to ensuring that potential whistleblowers can freely communicate with the SEC about possible securities law violations,” Norberg said.