The SEC announced settled charges against GQG Partners (GQG), a New York boutique RIA for its violation of the Dodd-Frank era Whistleblower Protection Rule.

GQG has agreed to pay a $500,000 penalty without admitting or denying the allegations.

The charges relate to NDAs the company entered into with employment candidates that hamstrung their ability to act as whistleblowers in the future. The company also entered into a release and settlement agreement with a former employee that included limitations on the reporting of securities law violations.  

NDAs for candidates

According to the order, from November 2020 through September 2023, GQC made twelve candidates for employment sign NDAs. These NDAs contained language that prohibited them to disclose that they had confidential information about GQG, which included reporting violations to government entities.

The NDAs prohibited the prospective employees from responding to SEC requests for information if the inquiries had arisen from their own voluntary disclosures, and required the prospective employees to notify the company if they had been contacted by the SEC.

Settlement agreement for former employee

GQG also entered into a Release and Settlement Agreement with an employee after their lawyer mentioned they were considering going after GQG for potential securities law violations. While that agreement nominally allowed the former employee to blow the whistle, it also required representations that they:

• “(i) had not sought to initiate any investigation by any governmental agency;
• (ii) [were] aware of no facts that would form the basis of such an investigation; and
• (iii) would withdraw any statements already made that would form the basis of an investigation,” according to the order.

“Whether through agreements or otherwise, firms cannot impose barriers to persons providing evidence about possible securities law violations to the SEC, as GQG did,” said Corey Schuster, Co-Chief of the Division of Enforcement’s Asset Management Unit.

“Even agreements that contain carve-out language allowing people to voluntarily report to the SEC can be violative if restrictive language in a separate provision impedes voluntary reporting to the Commission staff.”

Sending a message

Despite the clarity of relevant regulations, financial services providers continue to get caught up in enforcement actions regarding confidentiality agreements that proscribe the ability of employees to contact the SEC about violations.

Enforcement in this area has been ramping up. The charges against GQG come after the SEC settled charges totaling more than $3m with seven companies earlier this month for creating employment and separation agreements that ran afoul of rules designed to protect whistleblowers.

And the SEC fined JP Morgan $18m earlier this year for requiring advisory clients and brokerage customers to sign release agreement that impeded the clients from disclosing potential violations of the federal securities laws to the SEC.

Likewise, the SEC charged Activision Blizzard Inc. in 2023 for including a clause that required departed employees to “notify the company if they received a request from a government administrative agency in connection with a report or complaint.”

In short, the SEC’s current position regarding clever ways to get out of whistleblower protection rules seems to be: don’t even think about it.

Rule violations

For both the nondisclosure agreements entered into with prospective employees and the settlement negotiation, the SEC charged GQG Partners with violating:

SEC Rule 21F-17(a), which states that “[n]o 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.”