SEC Sanctions KBR in First Case Against Muzzling Whistle-Blowers

The U.S. Securities and Exchange Commission sanctioned KBR Inc. for trying to block employees from reporting misdeeds to regulators, the agency’s first action against a company for trying to muzzle whistle-blowers.

KBR, a multinational construction and energy-services firm, asked employees to sign agreements stating they weren’t permitted to discuss possible misconduct with anyone outside the company, the SEC said in a statement Wednesday. The agreements violated SEC provisions aimed at protecting whistle-blowers, the agency said.

KBR agreed to pay $130,000 and to tell employees that they are free to talk to federal prosecutors or regulators.

“SEC rules prohibit employers from taking measures through confidentiality, employment, severance, or other type of agreements that may silence potential whistle-blowers before they can reach out to the SEC,” Enforcement Director Andrew Ceresney said. “We will vigorously enforce this provision.”

The SEC has come to rely more heavily on whistle-blowers since the 2010 Dodd-Frank Act gave it the authority reward people whose tips lead to enforcement actions. The agency has more investigations underway into other companies suspected of blocking employees from coming forward, Ceresney told reporters Wednesday.

The KBR investigation began after regulators learned about the agreements, which the company had asked witnesses to sign as part of internal investigations, the SEC said. The forms stated that witnesses needed approval from KBR’s lawyers before they could discuss any allegations with people outside the company.

Regulators didn’t find that KBR prevented whistle-blowers from talking to investigators, Ceresney said. The signed agreements still violated SEC rules because they “impeded” KBR employees from talking to the government without the company’s approval, Ceresney said.

“The SEC’s order acknowledges that it is not aware of KBR having ever prevented anyone from reporting to the SEC nor has the company taken any action to enforce the agreement and that is because we have never done so,” KBR Chief Executive Officer Stuart Bradie said in a statement. “We are pleased to have amicably resolved this matter and look forward to putting it behind us.”

The confidentiality forms used by KBR predate the SEC’s rules that forbid companies from impeding whistle-blowers. The company agreed to change the language as a condition of the settlement, Ceresney said.

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