SEC Charges D. E. Shaw with Violating Whistleblower Protection Rule
The Securities and Exchange Commission today announced settled charges against New York-based registered investment adviser D. E. Shaw & Co., L.P. for raising impediments to whistleblowing by requiring employees to sign agreements prohibiting the disclosure of confidential corporate information to third parties, without an exception for potential SEC whistleblowers, and by requiring departing employees to sign releases affirming that they had not filed any complaints with any government agency in order for the employees to receive deferred compensation. D. E. Shaw agreed to pay $10 million to settle the SEC’s charges.
The SEC’s order finds that, from at least 2011 through 2019, D. E. Shaw required new employees to sign agreements that prohibited them from disclosing confidential information to anyone outside the company unless authorized by D. E. Shaw or required by law or court order. Confidential information was broadly defined to include any information gained in the course of employment that could reasonably be expected to be damaging to D. E. Shaw if disclosed to third parties. In addition, according to the SEC’s order, from at least 2011 through 2023, D. E. Shaw required approximately 400 of its departing employees to sign releases affirming that they had not filed any complaints with any governmental agency, department, or official in order for them to receive deferred compensation and other benefits sometimes worth millions of dollars. The SEC’s order finds that, in 2017, D. E. Shaw circulated a firm-wide email notifying employees that they were not prohibited from communicating with regulators regarding possible violations of law and that notice to D. E. Shaw was not required. However, according to the order, D. E. Shaw did not include similar whistleblower protection language in its employment agreements until 2019 and in its releases until 2023—after the SEC’s investigation commenced.
“Entities employing confidentiality, separation, employment and other related agreements should take careful notice of today’s enforcement action,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “The Commission takes seriously the enforcement of whistleblower protections and those drafting or using these types of agreements should take equally serious their obligations to ensure that they don’t impede whistleblowers from contacting the Commission.”
“Protected by federal law, whistleblowers play a significant role in uncovering fraud and other illegality in the securities markets, particularly with respect to registered entities regulated by the Commission,” said Sheldon L. Pollock, Associate Director of the SEC’s New York Regional Office. “The SEC remains committed to ensuring their unfettered ability to provide information to further our investigations.”
The SEC’s order finds that D. E. Shaw violated Rule 21F-17(a) of the Securities Exchange Act of 1934, a whistleblower protection rule that prohibits taking any action to impede an individual from communicating directly with the SEC staff about a possible securities law violation. Without admitting or denying the SEC’s findings, D. E. Shaw agreed to be censured, cease and desist from violating the whistleblower protection rule, and pay a $10 million civil penalty.
The SEC's investigation was conducted by Theresa Gue and Joshua Tannen and was supervised by Celeste Chase and Mr. Pollock, all of the New York Regional Office.