Tech Firms Try To Muzzle Workers With NDAs, SEC Tipsters Say

Major US tech companies are forcing their workers to sign illegal employment contracts, despite years of enforcement by the agency, the Securities and Exchange Commission has filed a complaint.

According to a whistleblower complaint reviewed by Bloomberg News and filed with the agency by law firm Kohn, Kohn & Colapinto LLP, contractors at companies including Apple, Electronic Arts and Block violated nondisclosure agreements that prevent employees from reporting violations to the SEC. . Contracts that prohibit employees from sharing confidential information with third parties do not include exceptions to alerting regulators.

The claims come as the SEC under Gary Gensler tightens its enforcement of agency rules stemming from the Dodd-Frank financial reform law. Under these rules, companies are prohibited from preventing anyone from reporting to the SEC. Law enforcement is a priority for SEC chief of enforcement Gurbir Grewal, according to a person familiar with the matter, who spoke on condition of anonymity to discuss the agency’s internal politics.

According to a spokesperson for Block, the company’s code of conduct and business practices require all employees not to interact with government agencies. That policy differs from employment contracts, which lawyers say should include specific conditions for reporting violations to regulators. A spokesman for Electronic Arts declined to comment.

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Created after the 2008 financial crisis, the SEC’s whistleblower program has garnered thousands of tips, distributed more than $1 billion in whistleblower awards, and become one of the agency’s favorite tools for fighting corporate wrongdoing. Maintaining vague nondisclosure agreements threatens the agency’s efforts to hold companies accountable.

The agency has prosecuted 17 of them since it began implementing the act in 2015, after President Biden took office in 2021, compared to two during Trump’s presidency. Most of the cases were under the Obama administration.

Former SEC chairman and Trump nominee Jay Clayton said in an interview that he will prosecute when necessary to protect the rights of hackers. “Companies need to know how to structure contracts according to the law,” he said.

Given the agency’s public statements and several allegations against the deal, the deal shows “willful disregard” for SEC rules and regulations, one of which Cohen, Cohen and Calapinto cited in a January complaint by Bloomberg. The allegations refer to employment contracts through 2022 at Electronic Arts, one of the world’s largest video game publishers known for its Star Wars and sports games, and Jack Dorsey Block, which operates the Square digital payment service.

It continues despite new attacks by activists who have called for tougher punishments to stop the practice. Even though these contracts are not legally binding, employees are afraid to report violations to regulators. Gensler has praised the driver program since taking office. In the year In August 2022, he said, “I am incredibly helpful in the work of the Investor Protection Commission.”

SEC rules do not only apply to contracts that prohibit employees from dealing with agencies. Companies can face problems if they ask employees to waive whistleblower compensation rights, which the SEC did to an Atlanta company in 2016. SEC whistleblowers can receive fines of up to 30 percent of what they collect as a result of actions by law enforcement agencies.

Thomas Le Bonnick, who works for Apple contractor GlobeTek Services, initially struggled to make a statement about Siri’s privacy practices because of unclear transparency agreements. In her contract, she was threatened with unspecified “monetary damages” if she shared confidential information “off the job” — nothing specific, according to her complaint.

“It was scary. I thought I might be broke for the rest of my life,” Le Bonique, who is represented by Cohn, Cohn & Colapinto, said in an interview.

As a special data analyst at Siri, Boniac listened to conversations that users felt violated their privacy, including sexual preferences, bank account numbers and details of health issues. . The importance of disclosing the location of the documents outweighed the risk of breaching their agreement, which is why it was made public. Following customer outrage, Apple has made changes to Siri to address privacy concerns.

Le Bonac said he was primarily acting as an Apple employee, using an assigned email address and doing work exclusively for the company. He believes tech giants should be held accountable for subcontracting work.

After leaving GlobeTick in 2020, Le Boniac filed a previously undisclosed complaint with the SEC alleging that Apple contractors provided secret forms that prevented employees from reporting misconduct to the agency.

“The persistence of these violations makes it clear to us that public companies in the U.S. cannot use contractors to circumvent the rules they are required to obey wherever they operate,” the complaint said, blaming Apple and Globe. That. Violation of SEC regulations.

An Apple spokesman declined to comment. GlobeTech did not respond to email requests for comment.

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Employers have been aware of this problem since 2015, when government contractor KBR agreed to pay a $130,000 fine, without admitting or denying the charges. The Company has changed its Privacy Policy to notify the Company of suspected violations before reporting them to a government agency.

In a Bloomberg News review of nondisclosure agreements over the past two years and recent filings with the agency, at least ten companies continue to be exempt from SEC filings.

“The fact that this is still happening is very troubling,” said Dan Berkowitz, who served as general counsel for the SEC until January. “SEC Punishes Companies for Limited Non-Disclosure Agreements with No Clear Differences.”

Last year, Brink’s money management firm agreed to pay a $400,000 fine without admitting or denying wrongdoing and to amend its employment contract to include exemption from government reporting.

Some companies face problems when using quotas.

In February, video game company Activision Blizzard pleaded guilty to violating rules by using dissuasion agreements that require employees to notify the company before responding to agency inquiries.

When registering a company’s business practices, the SEC notes that while most actuarial agreements include a separate designation for regulatory reporting, the notification requirement undermines the rule. The company neither admits nor denies any wrongdoing.

“As described in the order, we have improved our workplace transaction disclosure process and updated the termination agreement,” a company spokesperson said.

As enforcement gets tougher, drivers’ advocates are calling for tougher penalties, arguing that the current standard of good will come at an acceptable business price for breaking the rules.

“Some companies roll the dice until their fines go up a little bit,” said Mary Inman, a partner at Constantine Cannon, which represents the plaintiffs. “It’s a small price to pay to silence the whistleblower.”

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