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Tuesday
Dec202016

SEC says NeuStar tried to impede whistleblowing

The Securities and Exchange Commission fined a Virginia-based technology company $180,000 Monday for using severance agreements that impeded former employees from communicating information to the SEC.

The SEC said NeuStar Inc. routinely put language in severance agreements forbidding departing employees from sending regulators “any communication that disparages, denigrates, maligns or impugns” the company. 

The employees could forfeit all but $100 of their severance pay for breaching the clause. 

SEC Rule 21F-17 makes it unlawful to take “any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation.”

The rule was enacted as part of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act to encourage and protect whistleblowers.

Neustar used the severance agreements with at least 246 departing employees from August 2011 to May  2015, the SEC said.

The company voluntarily revised the severance agreements after the SEC began investigating.

It consented to the SEC’s cease-and-desist order (pdf) without admitting or denying the findings. 

Neustar provides real-time information and analytics for the Internet, telecommunications, entertainment, and marketing industries. It's also a domain name registry for .biz, .us (on behalf of United States Department of Commerce), .co, and .nyc top-level domains.

The company was a business unit of Lockheed Martin Corporation until it was spun off in 1998. The Sterling, Virginia firm has about 1,500 employees. It trades on the NYSE under the symbol NSR.

NeuStar agreed Monday "to make reasonable efforts to inform those who signed the severance agreements that NeuStar does not prohibit former employees from communicating any concerns about potential violations of law or regulation to the SEC."

In August, insurance provider Health Net Inc. paid a $340,000 penalty to the SEC for illegally using severance agreements that required outgoing employees to waive their ability to obtain monetary awards from the SEC’s whistleblower program.

Also in August, the SEC fined building-products wholesaler Blue Linx Holdings $265,000 for requiring departing employees to waive their rights to recover money from any whistleblower claims they filed with the SEC or other federal agencies.

The SEC also brought actions against KBR, Inc. in April 2015 and Merrill Lynch in June 2016 for using agreements that restricted employees’ ability to disclose information to government agencies.

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Richard L. Cassin is the publisher and editor of the FCPA Blog.