March 2, 2021

Volume XI, Number 61


March 01, 2021

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OCIE Staff to Examine Registered Advisers' Policies and Agreements for Whistleblower Rule Compliance

On October 24, 2016, OCIE published a risk alert noting that the SEC exam staff intends to examine registrants' compliance with the Dodd-Frank Act's whistleblower provisions.  The alert noted recent enforcement actions charging violations of Rule 21F-17 as a result of confidentiality or severance agreements that allegedly impeded individuals from communicating with the SEC. In light of those actions, the national exam program intends to review registered investment advisers' policies and agreements for whistleblower compliance. Advisers should expect OCIE staff to include in their exams a review relating to Dodd-Frank whistleblowers.

What documents will examiners request?  The alert specifically notes the following:

  • compliance manuals;

  • codes of ethics;

  • employment agreements; and

  • severance agreements.

We previously noted in August that advisers should review these policies for compliance.

What will examiners look for?  Specifically, the alert notes that examiners will look for agreements that the SEC has previously found to violate the whistleblower laws, and other provisions that may impede employees or former employees from communicating with the SEC. Examples are agreements that:

  • Limit the types of information that an employee may convey to the SEC or other authorities;

  • Require departing employees to waive their right to any monetary recovery in connection with reporting information to the government;

  • Require representations that an employee has not assisted in any investigation involving the registrant; or

  • Require an employee to notify or obtain consent prior to disclosure, allow disclosure "only as required by law," or prohibit any and all disclosure of confidential information, without an exception for voluntary communications with the SEC concerning possible securities law violations.

What remedial actions might be taken?  As each situation is likely to be analyzed on a case-by-case basis, it is hard to predict. However, the alert noted the following remedial actions imposed in recent SEC enforcement cases:

  • Requiring documents to be revised on a going-forward basis to clarify that nothing therein will prohibit employees from voluntarily communicating with the SEC concerning potential violations or from recovering a related whistleblower award;

  • Requiring general notices to employees of their right to contact the SEC or other authorities; and

  • Contacting former employees who signed severance agreements to inform them that they are not prohibited from communicating with the SEC or seeking a whistleblower award.

© 2020 Proskauer Rose LLP. National Law Review, Volume VI, Number 307



About this Author

Robert G Leonard, Proskauer Rose Law Firm, Private Investment Attorney

Robert G. Leonard is a Partner in the Hedge Funds Group. For more than 25 years Rob has been structuring, organizing and representing hedge funds, funds of funds and other private investment funds (both domestic and offshore) and investment advisers.

Michael F Mavrides, Proskauer Rose Law Firm, Private Investment Attorney

Michael F. Mavrides is a Partner in the Hedge Funds Group. Mike focuses his practice on representing domestic and offshore hedge funds, funds of funds and other private investment funds, including private equity and real estate investment funds. He regularly advises funds and their managers on a wide variety of issues, including formation and structuring, seed capital, anchor capital and other strategic arrangements, placement agency, solicitation and other marketing arrangements, succession planning, separately managed accounts, and all types of portfolio management, trading and...

Joshua Newville, Proskauer Rose, regulatory enforcement attorney, industry compliance legal counsel, securities exchange commission lawyer

Joshua M. Newville is a partner in the Litigation Department in New York. His practice focuses on commercial litigation and regulatory investigations. Mr. Newville advises companies and individuals in securities litigation and compliance matters. He also focuses on internal investigations and enforcement matters. Prior to joining Proskauer, Josh was senior counsel in the U.S. Securities and Exchange Commission’s Division of Enforcement, where he investigated and prosecuted violations of the federal securities laws. Josh served in the Enforcement Division’s Asset...

Anthony M. Drenzek, Special regulatory Counsel, Proskauer Rose, Attorney, Finance Policy Lawyer
Special Regulatory Counsel

Tony is special regulatory counsel in the Corporate Department and a member of the Private Funds Group and the Private Equity & Hedge Fund Litigation team. His practice focuses on advising U.S. and offshore private fund managers on all aspects of federal, state and SRO organizational and operational compliance, with a specific emphasis on the Investment Advisers Act of 1940.

Tony assists U.S. and offshore private fund clients in registering with the SEC as investment advisers, or reporting as exempt reporting advisers, and complying with...