SEC Brings Another Enforcement Action Based on Severance Agreements that Remove Financial Incentives for Whistleblowing
For the second time within one week, the Securities and Exchange Commission (“SEC”) instituted and settled cease-and-desist proceedings last week against an issuer for allegedly violating the SEC’s whistleblower protection provisions under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As in the enforcement action the SEC initiated against BlueLinx Holdings Inc. on August 10, the issuer subject to the cease-and-desist order – Health Net, Inc. (the “Company”) – allegedly included provisions in its severance agreements with employees that removed “the critically important financial incentives that are intended to encourage persons to communicate directly with the Commission staff about possible securities law violations.”