June 28, 2021
A decade ago, the Dodd-Frank Wall Street Reform and Consumer Protection Act launched Wall Street's federal whistleblower program. A keystone of the Act was that it prohibited efforts to impede communications by tipsters to the SEC. Confidentiality agreements that enabled employers to threaten reprisals against employees who contacted the SEC were deemed a prohibited practice. Some companies got the message. Others not quite so.
Case In Point
Without admitting or denying the SEC's findings, Respondent Guggenheim Securities, LLC ("GS") submitted an Offer of Settlement whereby the company consented to the entry of an Order Instituting Proceedings and Imposing Sanctions and Order ("OIP"). In the Matter of Guggenheim Securities, LLC, Respondent (SEC Order Instituting Administrative and Cease-And-Desist Proceedings and Imposing Remedial Sanctions and Order; '34 Act Rel. No.92237; Admin. Proc. File No. 3-20370 / June 23, 2021)
The OIP asserts that GS has been a registered broker-dealer since 1997 with over 600 registered representatives at 16 branches.
The GS Manual
During the relevant period from about April 15, 2016 to July 2020, GS transmitted to its employees (upon their hire and thereafter on an annual basis) a GS Core Compliance Manual (the "GS Manual"), which required their signed acknowledgement of having read the contents and their required compliance with the stated policies. In part, under "Communications with Regulators" the GS Manual stated:
Employees are also strictly prohibited from initiating contact with any Regulator
without prior approval from the Legal or Compliance Department. This prohibition
applies to any subject matter that might be discussed with a Regulator, including an
individual's registration status with FINRA. Any employee that violates this policy
may be subject to disciplinary action by the Firm.
Further, the GS Manual's "Introduction" provides in part that:
There may be circumstances in which a GS policy or procedure may be more (or
less) restrictive than a GC policy or procedure. In all such circumstances, GS
personnel should follow the more restrictive of the policies or procedures, absent
explicit direction to the contrary.
Code of Conduct
GS employees were required to comply with the "Code of Conduct" promulgated by what the OIP characterizes as the Respondent's "majority indirect owner is Guggenheim Capital, LLC . . ." During the relevant period, the Code of Conduct asserted under "Public Statements" that it:
should not be interpreted to restrict or interfere with any employee's rights, free speech, or any whistleblower protections under applicable laws, regulations and requirements.
Further, in July 2016, the Code of Conduct was amended under "Prompt and Confidential Reporting of Illegal or Unethical Conduct" to disclose that:
Nothing in this policy or any other Company policy or agreement is intended to prohibit you (with or without prior notice to the Company) from reporting to or participating in an investigation with a government agency or authority about a possible violation of law, or from making other disclosures protected by applicable whistleblower statutes.
Annual Training Materials
In 2018/2019, GS's annual compliance training included materials under a "Communication with Regulator" that set out this bullet-point:
Employees are prohibited from initiating contact with any regulator without prior
approval from Legal or Compliance, including conversation[s] regarding an
individual's registration status with FINRA.
Effective August 12, 2011, Rule 12G-17 as promulgated under the Dodd-Frank Wall Street Reform and Consumer Protection Act provides in part that:
(a) 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.
The OIP asserts that GS's above-described conduct constituted the willful violation of Rule 21F-17, and in accordance with the Offer of Settlement, the SEC imposed upon GS a Censure and a $208,912 civil money penalty; and the firm was ordered to cease and desist from further violations of the cited Rule.
In imposing sanctions, the OIP asserts that the SEC considered the following:
13. After it was contacted by the Commission staff in this matter, GS revised the GS
Manual by removing the language described in paragraph 5 above and adding the following
language affirmatively advising employees of their right to contact regulators with concerns about
potential legal or regulatory violations:
nothing in [the GS Manual] prohibits or restricts any person in any way from
reporting possible violations of law or regulation to any governmental agency or
entity, or otherwise prevent anyone from participating, assisting, or testifying in any
proceeding or investigation by any such agency or entity or from making other
disclosures that are protected and/or permitted under law or regulation.
14. The revised GS Manual further notes that:
[n]othing in this Manual, any agreement between GS and its employees, or any GS
policy or program requires a person to obtain prior authorization from GS to make
any such reports or disclosures to any governmental agency or entity or to notify GS
that an individual intends to make or has made such reports or disclosures.
GS communicated the revisions to its employees through a compliance alert, which linked to the
revised GS Manual.
Bill Singer's Comment
The SEC showed a lot of leniency in this settlement, and, frankly, I'm not sure that it was warranted. The anti-whistleblower written policy was clearly drafted and implemented by Guggenheim and, notably, the policy was not revised on Guggenheim's own volition but, as Paragraph 13 notes, after the SEC had contacted the company.