The SEC announced on Tuesday settled charges against CBRE, Inc., a Dallas-based commercial real estate services and investment firm and subsidiary of publicly traded CBRE Group, Inc., for using an employee release that violated the SEC’s whistleblower protection rule.

CBRE will pay a civil penalty of $375,000 in the offer of settlement, which was agreed upon because of the cooperation and remedial actions demonstrated by the company.

The separation agreements

According to the SEC’s order, between 2011 and 2022, as a condition of receiving separation pay, CBRE required its employees to sign a release in which employees attested that they had not filed a complaint against CBRE with any federal agency.

The SEC’s order finds that by conditioning separation pay on employees’ signing the release, CBRE took action to impede potential whistleblowers from reporting complaints to the agency.

“It is critical that employees are able to communicate with SEC staff about potential violations of the federal securities laws without compromising their financial interests or the confidentiality protections of the SEC’s whistleblower program.”

Eric Werner, Regional Director, SEC Fort Worth Office

Once the SEC informed CBRE that it had launched an investigation, the company cooperated with Commission staff and began taking extensive remedial action. Those remedial efforts included revising all versions of its domestic releases and similar agreements for compliance with the whistleblower protection rule. CBRE also communicated with more than 800 of its employees who had signed the release, clarifying the protections afforded to them by the rule, including their right to communicate directly with SEC staff regarding any potential violation of federal securities laws.

“It is critical that employees are able to communicate with SEC staff about potential violations of the federal securities laws without compromising their financial interests or the confidentiality protections of the SEC’s whistleblower program,” said Eric Werner, Regional Director of the SEC’s Fort Worth Office. “We commend CBRE for its swift and far-reaching remediation and for its high level of cooperation with our staff, which is reflected in the terms of the resolution.”

Dodd-Frank

The Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 amended the Exchange Act by adding Section 21F, “Securities Whistleblower Incentives and Protection.”

The SEC then adopted Rule 21F-17, which provides in relevant part: “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.”

Implications

This is the second settlement in under two weeks with a company involving allegations that the company violated whistleblower protections through language in its separation agreements. (On September 8, the SEC announced settled charges against Monolith Resources LLC, a privately held energy and technology company, for using employee separation agreements that violated the whistleblower protection rules.)

The SEC has been very clear that employee-related documents – those associated with terminations, but also employee handbooks, employment agreements and codes of ethics, among others – cannot be read to impede reporting any allegations of misconduct to the securities watchdog.

These enforcement actions are a reminder to businesses to fully review all employee agreements … for red flags of possible whistleblower protection violations.

Indeed, it is the existence of language in these documents that is viewed as impeding reporting to the SEC and not any actual enforcement of such language by an employer that leads to the SEC’s charges.

In February, the SEC charged Activision Blizzard Inc, a video game developer and publisher, for requiring in its separation agreements that former employees “notify the company if they received a request from a government administrative agency in connection with a report or complaint.”

The SEC said it was “not aware of any specific instances in which a former Activision Blizzard employee was prevented from communicating with Commission staff about potential violations of securities laws or in which Activision Blizzard took action to enforce the notification clause or otherwise prevent such communications”.

But that was not the point of its action; the company still had to pay a $35m fine for having language in an agreement that could impede former employees from communicating directly with the SEC’s staff.

These enforcement actions are a reminder to businesses to fully review all employee agreements, codes of conduct, employee manuals, and all training materials addressing the reporting of misconduct, etc., for red flags of possible whistleblower protection violations. This includes templates and, now that we we’re on the topic of reusing material, anything your generative AI tool produces.