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SEC Finds Employee Manual Violates Dodd-Frank

By | June 25, 2021

In a recently settled SEC enforcement action, the defendant asked employees to sign an acknowledgement, upon hire and on an annual basis, that they had received, read, and would adhere to the defendant’s employee manual. The employee manual contained a “Communications with Regulators” section that stated, in relevant part:

Employees are also strictly prohibited from initiating contact with any Regulator without prior approval from the Legal or Compliance Department. This prohibition applies to any subject matter that might be discussed with a Regulator, including an individual’s registration status with FINRA. Any employee that violates this policy may be subject to disciplinary action by the Firm.

Among other things the defendant’s annual compliance training materials in those years contained a slide with a section titled “Communication with Regulators” and a sub-bullet point that stated:

Employees are prohibited from initiating contact with any regulator without prior approval from Legal or Compliance, including conversation[s] regarding an individual’s registration status with FINRA.

The SEC stated it was not aware of any specific instances in which an employee of defendant was prevented from communicating with Commission staff about potential securities laws violations or that defendant took action to enforce the employee manual’s restriction or otherwise prevent such communications.

The SEC found the defendant willfully violated Rule 21F-17 of the Exchange Act, which prohibits any person from taking any action to impede an individual from communicating directly with the SEC about possible securities law violations.

Upon being contacted by the SEC the defendant made the following changes to its employee manual amongst others:

“nothing in [the GS Manual] prohibits or restricts any person in any way from reporting possible violations of law or regulation to any governmental agency or entity, or otherwise prevent anyone from participating, assisting, or testifying in any proceeding or investigation by any such agency or entity or from making other disclosures that are protected and/or permitted under law or regulation.”

The SEC assessed defendant a civil monetary penalty in the amount of $208,912.

The defendant did not admit or deny the findings in the SEC order.

Contact Steve Quinlivan for more information.