On the heels of an $18 million settlement with the Equal Employment Opportunity Commission (EEOC) over claims of retaliation in connection with sexual harassment, a company has agreed to pay $35 million to settle U.S. Securities and Exchange Commission (SEC) charges.

The settlement resolved novel claims that the company failed to maintain adequate disclosure controls to track workplace complaints and that it violated whistleblower protection rules by potentially discouraging former employees’ abilities to communicate with regulators.

The SEC found that a failure to collect workplace complaints prevented management from obtaining sufficient information to understand the volume and substance of workplace complaints. This deficiency, according to the SEC, prevented management from having adequate information to assess whether its public disclosures concerning its workforce were “fulsome, accurate, and not misleading by omission.”¹ The SEC found this conduct to be a violation of Exchange Act Rule 13a-15(a), which requires companies to maintain “disclosure controls and procedures.”

Moreover, since the company included a clause in its employee separation agreements that required individuals to notify management when an employee received a request for information from regulators, the SEC found a violation of Exchange Act Rule 21F-17(a). The rule “…prohibits any person from taking any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation.”²

With workplace conduct continuing to attract attention from plaintiffs and regulators, it remains of utmost importance to ensure robust management liability insurance coverages across your portfolio.

If you have questions about your coverage or are interested in obtaining coverage, please contact your Aon broker.

1 In re Activision Blizzard, Rel. No. 34-96796 (Feb. 3, 2023)
2 Id.