The U.S. Securities and Exchange Commission (SEC) announced on Tuesday that Health Net Inc., a California-based health insurance provider, has agreed to pay US$340,000 for using severance agreements that require outgoing employees to waive their ability to obtain monetary awards from the SEC’s whistleblower program.
The firm consented to the SEC’s cease-and-desist order without admitting or denying the findings. In addition to the monetary penalty, it also agreed to inform former employees who signed the severance agreements that they are not prohibited from obtaining a whistleblower award from the SEC.
According to the SEC’s order, the company violated federal securities laws by introducing a provision that would deter departing employees from filing applications for SEC whistleblower awards. It says that the firm removed the SEC-specific language from its severance agreements in June 2013, but retained restrictive language that removed the financial incentive for reporting information, and finally removed all of the restrictive language last year.
“Financial incentives in the form of whistleblower awards, as Congress recognized, are integral to promoting whistleblowing to the commission,” says Antonia Chion, associate director of the SEC enforcement division, in a statement. “Health Net used its severance agreements with departing employees to strip away those financial incentives, directly targeting the commission’s whistleblower program.”
In July, the Ontario Securities Commission (OSC) launched its own whistleblower program that would pay financial rewards for information that leads to major enforcement action. The OSC’s program also includes protections for prospective whistleblowers.