DE Shaw & Co has agreed to pay $10m to settle Securities and Exchange Commission (SEC) charges that it made employees sign agreements prohibiting the disclosure of confidential corporate information to third parties, without including an exception for potential SEC whistleblowers.
The SEC charges also said that the hedge fund firm requires 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.
Under the agency’s rules, companies are explicitly prohibited from obstructing anyone from providing tips to the SEC. The settlement is one of the biggest fines on record for alleged breaches of the SEC’s whistleblower-protection rules.
The SEC’s order finds that, from at least 2011 through 2019, DE Shaw required new employees to sign agreements that prohibited them from disclosing confidential information to anyone outside the company unless authorised by DE Shaw or required by law or court orders. Confidential information was broadly defined to include any information gained in the course of employment that could reasonably be expected to be damaging to DE Shaw if disclosed to third parties.
In addition, according to the SEC’s order, from at least 2011 through 2023, DE 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 found that, in 2017, DE 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 DE Shaw was not required.
However, according to the order, DE 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.
