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April 1 — KBR Inc. agreed April 1 to settle a first-of-its-kind SEC administrative enforcement action that one of its confidentiality agreements infringed on federal whistle-blower protections.
KBR employees who internally reported potential wrongdoing had to sign a confidentiality agreement that prohibited them from “discussing any particulars” about the subsequent internal investigation without permission of the company's legal department, the Securities and Exchange Commission said.
Violating that provision would bring “disciplinary action up to and including termination of employment.”
The SEC said the form violated Rule 21F-17 under the 1934 Securities Exchange Act, which prohibits companies from impeding employee attempts to report wrongdoing to the agency.
That rule was created under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
“SEC rules prohibit employers from taking measures through confidentiality, employment, severance, or other type of agreements that may silence potential whistleblowers before they can reach out to the SEC,” SEC Enforcement Director Andrew Ceresney said in a news release. “We will vigorously enforce this provision.”
KBR has changed its agreement to say that nothing prevents whistle-blowers from reporting externally, even without permission of the legal department, the agency said. KBR also agreed to pay a $130,000 civil money penalty without admitting or denying wrongdoing.
“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,” Stuart Bradie, KBR president and chief executive officer, said in a statement. “We are pleased to have amicably resolved this matter and look forward to putting it behind us.”
A company spokeswoman said “KBR always intended the confidentiality agreement, which was in use long before the SEC rule, be used only to protect the integrity and confidentiality of internal, privileged investigations.”
KBR was represented by Vinson & Elkins LLP in Washington and Dallas.
The investigation grew out of a February 2014 tip to federal officials from a former KBR employee, Harry Barko, Barko's lawyer, Stephen Kohn, said.
In a statement, Kohn said the settlement marks a “historic day” for whistle-blowers.
“Corporations have a history of silencing employees by forcing them to sign highly restrictive non-disclosure agreements,” Kohn said. “Today’s action by the SEC signals the advancement of nation-wide corporate reform. Transparency has triumphed over censorship.”
Separately, KBR has been embroiled in ongoing litigation stemming from Barko's lawsuit related to the company's internal investigations of the relationship between certain KBR employees and the awarding of contracts to a Jordanian subcontractor, Daoud & Partners. The U.S. Court of Appeals for the District of Columbia has scheduled oral argument regarding disclosure orders in the case.
In a conference call with reporters, Ceresney said other investigations are “in progress” regarding confidentiality agreements that potentially infringe on whistle-blower protections.
Sean McKessy, head of the SEC's Whistleblower Office, made similar comments March 31.
SEC Chairman Mary Jo White said earlier this year that the agency is committed to ensuring “the unimpeded right of employees to report wrongdoing to the commission”.
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The SEC order is available at http://www.sec.gov/litigation/admin/2015/34-74619.pdf.
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