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Another Company Paying Penalty for Violating SEC Whistleblower Rules; Company Severance Agreements Removed Financial Incentives for Whistleblowing

California-based Health Net Inc. has agreed to pay a penalty for illegally using its severance agreements to require outgoing employees to waive their ability to obtain monetary awards from the Securities and Exchange Commission (the “SEC”) whistleblower program.

Health Net has agreed to pay a $340,000 penalty per the SEC’s order.

According to the SEC’s order, Health Net included a provision that enumerating various potential claims against it that a departing employee waived as a condition of being paid monetary severance payments – essentially an agreement stipulating to keep quiet or risk losing your money.

Once the SEC adopted Rule 21F-17 under the Securities Exchange Act of 1934, discussed further below, in August 2011, Health Net amended the provision to specify that former employees could participate in government investigations but were prohibited from filing an application for, or accepting, a whistleblower award from the Commission.

In June 2013, Health Net further amended the language of the provision and took out the SEC whistleblower restrictions and instead prohibited receiving any individual monetary recovery from a government investigation.

In 2011, the SEC adopted Rule 21F-17, which prohibits any action that will impede someone from communicating with the SEC about possible securities law violations.  Its intention was to stop companies from contractually clogging whistleblowers’ whistles.  Companies cannot implement strategies penalize whistleblowing and undercut key principles of the whistleblower program.

The Dodd-Frank Act established the whistleblower program in 2012, shoring up and establishing new rules like Rule 21F-17. The whistleblower program entices “whistleblowers” to come forth and help the SEC identify possible fraud and other violations much earlier than might have been possible, consequently reducing harm to investors, preserving the integrity of U.S. capital markets, and swiftly holding perpetrators of unlawful conduct accountable, according to the SEC Office of the Whistleblower website.

Severance agreements that undermine the SEC whistleblower program like that of Health Net’s are prohibited, as they discourage whistleblowers from coming forth.

Additionally, the Act offers confidentiality, protection from retaliation, and rewards fraud tipsters for reporting wrongdoing that leads to an SEC enforcement action in which over $1 million in sanctions is ordered.  The award can range anywhere from 10 to 30 percent of the sanctions, according to the website.

Scott L. Silver, managing partner of the Silver Law Group, was an early proponent of the legislation and authored a primer on the SEC Whistleblower Program.  Our legal team includes former defense attorneys and government prosecutors now working to protect whistleblowers.

Silver Law Group is committed to the protection of whistleblowers through the whistleblower claim process and can prosecute your whistleblower claims.  If you have questions about your legal rights as a whistleblower, please contact Scott Silver of the Silver Law Group for a free consultation at ssilver@silverlaw.com or toll free at (800) 975-4345.

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