The US Securities and Exchange Commission has announced that BlackRock Inc. (BLK) will pay $340K to settle civil charges accusing the New York-based asset manager of improperly utilizing separation agreements to get employees leaving the firm to waive their ability to receive an award as a whistleblower. BlackRock consented to the order brought by the regulator but did not deny or admit to the findings that it was in violation of any rules.
The SEC claims that over 1,000 BlackRock employees who exited the firm signed separation agreement that included language declaring that they were waiving any right to incentives that could be gained from reporting misconduct. The employees were required to sign these agreements if they wanted to receive any separation payments that BlackRock would owe them after their departure.
This waiver provision was added to BlackRock’s separation agreement in 2011 after the Commission had already put in place its Whistleblower Program rules. The firm continued to use the waiver with the agreements until early last year.
The SEC’s Office of the Whistleblower is authorized to issue a monetary award to individuals that provide quality original information if their tip leads to a successful SEC enforcement action resulting in at least $1M in monetary sanctions. Depending on the specifics of each case a whistleblower may be entitled to 10-30% of the funds collected.
Whistleblower Retaliation is Illegal
Employers of whistleblowers and potential whistleblowers are not allowed to prevent these tipsters from coming forward and providing information regarding possible violations of securities laws. They also cannot block employees and former employees from their right or ability to receive an award for turning whistleblower. Employers and former employers are barred from retaliating against whistleblowers.
In another SEC case, a Seattle-based financial services company will pay $500K to settle charges alleging that it took action to stop potential whistleblowers. HomeStreet Inc. (HMST) is also accused of improper hedge fund accounting.
The SEC’s order said that HomeStreet sought to find out if a whistleblower had come forward to allege improper hedge fund accounting and identify this person. Furthermore, the firm required ex-employees to waive possible whistleblower awards if they wanted to receive severance payments or other benefits owed to them post-employment.
HomeStreet originated about 20 fixed rate income commercial loans and went into interest rates swaps so it could hedge exposure. The financial services company designated the loans and the swaps in “fair value hedging relationships”—a move that can potentially reduce income statement volatility. In such instances, companies must evaluate these relationships on a periodic basis and stop using hedge accounting if the effectiveness ratio strays from a certain range.
The regulator claims that from ’11 to ’14, there were times when HomeStreet treasurer Darrell van Amen made sure that unsupported adjustments occurred in the company’s hedge effectiveness testing to make sure that HomeStreet could keep employing the favorable accounting treatment. The test results that were impacted by the “altered inputs” were then given to the company’s accounting department. This caused accounting entries to become inaccurate.
After HomeStreet employees voiced worries about the accounting mistakes, the financial services company determined that the adjustments that were made to its tests were not correct.
HomeStreet is settling but it is not denying or admitting to the SEC charges that it violated Rule21F-17 and certain provisions of the federal securities laws. van Amen will pay $20K over charges accusing him of causing the accounting violations.
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