As noted above, previously the SEC brought a number of enforcement actions against various entities for violations of Rule 21F-17. Specifically, these actions have focused on entities attempting to prevent or discourage employees from contacting regulators directly through compliance procedures, confidentiality provisions, and severance agreements (such as by requiring employees to waive whistleblower awards).
Most recently, on June 23, 2021, the SEC and a registered broker-dealer ("BD") with over 600 registered representatives and 16 branch offices, settled an enforcement action alleging violation of Exchange Act Rule 21F-17. Specifically, BD provided its employees with a compliance manual ("BD Manual") and required each employee to agree to adhere to the policies therein. Notwithstanding Rule 21F-17, from at least April 15, 2016 through July 2020, the BD Manual expressly prohibited employees from communicating with any regulator without seeking prior approval from the BD legal or compliance departments, noting that violations of the policy could result in disciplinary action by BD. BD also included this prohibition in at least two of its annual compliance training programs.
Employees of BD also were required to comply with the code of conduct of BD's parent company ("Parent Code"), which provided that nothing in the Parent Code should be interpreted "to restrict or interfere with any employee's rights, free speech, or any whistleblower protections under applicable laws, regulations and requirements." Despite this provision, however, the BD Manual provided that in circumstances where a BD policy was more restrictive than a Parent policy, employees were required to follow the more restrictive policy absent explicit instruction to the contrary.
Importantly, though the SEC found no instances where BD prevented an employee from speaking with the SEC or another regulator about possible securities law violations, and found nothing to indicate BD enforced the prohibition in the BD Manual to prevent any related communications, the SEC still found that BD violated Rule 21F-17 by including the prohibition in the BD Manual and compliance training materials.
In addition to issuing a cease and desist, the SEC censured BD and fined it over $200,000.