Earlier this month, Health Net Inc. agreed to pay a $340,000 penalty for illegally using severance agreements that required employees leaving the company to waive their right to obtain monetary awards from the SEC’s whistleblower program. According to the SEC order, by doing this, the California-based health insurance provider directly targeted the Congress-authorized program.
The Whistleblower program helps alert the SEC to possible securities law violations. When individuals notify the Commission of possible fraud or other violations, their knowledge of the circumstances and those involved can help the SEC minimize harm to investors and hold those engaging in misconduct accountable for their actions.
In August 2011, after the SEC implemented a rule prohibiting actions that might prevent someone from notifying the SEC of possible securities law violations, Health Net added a provision to its severance agreements which, among other things, required an employee signing the severance agreement to waive his or her right to any monetary recovery related to a federal investigation in which the employee participated. Health Net removed the SEC-specific language in June 2013; however, it continued to use restrictive language that eliminated the financial incentive for reporting information. Then, last year, the health insurance provider removed all restrictive language completely.
As a result of the SEC’s investigation, Health Net agreed to a cease-and-desist order. The company will also notify former employees who signed the severance agreements that they are not prohibited from seeking and obtaining a whistleblower award from the SEC under Section 21F of the Securities Exchange Act.
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