## Facts

- BlackRock, Inc., a public company with securities registered under Exchange Act § 12(b), used separation agreements that conditioned severance payments on certain employee promises.
- After adoption of the Dodd-Frank whistleblower provisions and SEC whistleblower rules, BlackRock revised its form separation agreement in October 2011 to include a waiver provision.
- From October 2011 through March 2016, more than 1,000 departing employees signed separation agreements stating they “waive any right to recovery of incentives for reporting of misconduct” to the SEC or other government agencies as a condition of receiving separation compensation.
- The SEC found no evidence that any employee was prevented from communicating with the SEC, and BlackRock did not attempt to enforce the waiver provision against any former employee.
- Before the SEC’s order, BlackRock voluntarily revised its separation agreement to remove the waiver language and implemented annual training describing employee rights under the SEC whistleblower program.
- The SEC instituted a cease-and-desist proceeding under Exchange Act § 21C; BlackRock consented to the order without admitting or denying the findings (except jurisdiction).

## Issues

1. Whether using separation agreements that require employees to waive the right to receive SEC whistleblower awards, as a condition of severance, constitutes an “action to impede” communications with the SEC in violation of Exchange Act Rule 21F-17(a).
2. Whether the SEC may find a Rule 21F-17(a) violation absent proof that any employee was actually deterred or prevented from contacting the Commission.

## Decision

- The SEC found BlackRock violated Exchange Act Rule 21F-17(a) by including severance-related waiver language that removed employees’ ability to obtain whistleblower awards.
- The SEC ordered BlackRock to cease and desist from committing or causing any present or future violations of Rule 21F-17.
- The SEC imposed a $340,000 civil monetary penalty.

## Legal Principles

- Exchange Act Rule 21F-17(a) prohibits actions that impede an individual from communicating directly with the SEC staff about possible securities law violations, including by enforcing or using agreements that functionally restrict whistleblower rights.
- Contract terms that condition severance or other benefits on waiving the right to receive SEC whistleblower awards may be treated as impeding whistleblowing because they undercut the financial incentives central to the statutory whistleblower program.
- A Rule 21F-17(a) violation may be found based on the presence and use of impeding contractual language, even without evidence of actual deterrence or enforcement against any employee.
- Voluntary remediation (removal of the offending language and employee training) may be considered in determining sanctions but does not eliminate liability for prior use of violative provisions.

## Conclusion

The SEC concluded that BlackRock’s separation agreements violated Rule 21F-17(a) by conditioning severance payments on waivers of SEC whistleblower award rights, ordered a cease-and-desist, and imposed a $340,000 penalty despite no showing of actual interference with employee reporting.


In the Matter of BlackRock, Inc., Exchange Act Release No. 79804 (S.E.C. Jan. 17, 2017)