Image of State Treasurers Call on SEC to Investigate Apple's Nondisclosure Agreements

State Treasurers Call on SEC to Investigate Apple’s Nondisclosure Agreements

In a January 30, 2022 letter to SEC Chair Gensler, eight State treasurers requested that the SEC investigate Apple’s nondisclosure agreements and whether Apple misled the SEC about their use of nondisclosure provisions in employment and post-employment agreements.  According to the January 30th letter, “multiple news reports have stated that whistleblower documents demonstrate Apple uses the very concealment clauses it repeatedly claimed it does not use . . .”  The January 30th letter also points out the importance of permitting employees to report unlawful conduct and the need for shareholders to have accurate information about workplace culture.

The SEC can investigate whether Apple’s alleged use of concealment clauses in agreement and policies violates the SEC’s anti-gag rule, which prohibits any “person” from taking “any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement . . . .”  Exchange Act Rule 21F-17, 17 C.F.R. § 240.21F-17.

The purpose of the anti-gag rule is to facilitate the disclosure of information to the SEC relating to possible securities law violations.  As explained in the release adopting the SEC’s whistleblower rules, “an attempt to enforce a confidentiality agreement against an individual to prevent his or her communications with Commission staff about a possible securities law violation could inhibit those communications . . . and would undermine the effectiveness of the countervailing incentives that Congress established to encourage individuals to disclose possible violations to the Commission.”  Implementation of the Whistleblower Provisions of Section 21F of the Securities Exchange Act of 1934, Release no. 34-64545 (May 25, 2011).

The SEC has taken enforcement actions for violations of Rule 21F-17, most of which are focused on employer agreements and policies that have the effect of impeding whistleblowing to the SEC.  These enforcement actions have strengthened the SEC’s whistleblower program by encouraging whistleblowers to report fraud and encouraging employers to revise their NDAs and policies to clarify that such agreements and policies do not bar lawful whistleblowing.

Apple’s market capitalization of approximately $2.8 trillion renders it the world’s most valuable company.  If Apple is using concealment clauses and unlawful NDAs to silence whistleblowers, then Apple shareholders may not have an accurate and complete picture of the company’s financial condition and risks, including Apple’s ESG-related risks and risks stemming from its potential violations of anti-trust laws.  Accordingly, it will be critical for the SEC to take enforcement action if it finds that Apple has violated the SEC’s anti-gag rule.

By some estimates, fraud and other white-collar crime costs the US economy $300 billion to $800 billion per year.  To combat fraud, regulators and law enforcement need the assistance and cooperation of whistleblowers to detect and effectively prosecute fraud.  But there are many substantial risks that deter whistleblowers from coming forward, including the risk of being sued for breaching a confidentiality agreement.  The continued success of whistleblower reward programs will hinge in part on regulators taking a firm stand against agreements and policies that impede whistleblowing.

For more information on unlawful restrictions on whistleblowing, see the article De Facto Gag Clauses: The Legality of Employment Agreements That Undermine Dodd-Frank’s Whistleblower Provisions.

De Facto Gag Clauses- The Legality of Employment Agreements That Undermine Dodd-Frank’s Whistleblower Provisions

How to Qualify for an SEC Whistleblower Award

SEC Whistleblower Program’s Protections Against Retaliation

How to Successfully Navigate the SEC Whistleblower Process

SEC Whistleblower Program Sets Records in 2021

  • In FY 2021, the SEC received more than 12,200 whistleblower tips—the largest number of whistleblower tips received in a fiscal year, which represents an approximate 76% increase over FY 2020.
  • From FY 2012 to FY 2021, the number of whistleblower tips submitted to the SEC has grown by approximately 300%.  In light of recent large awards, the SEC will likely continue to attract a high volume of whistleblower tips.
  • Since the inception of the SEC Whistleblower Program, the SEC has received more than 52,400 whistleblower tips and awarded approximately $1.1 billion to 226 individuals.
  • During FY 2021, the SEC awarded approximately $564 million to 108 individuals —both the largest dollar amount and the largest number of individuals awarded in a single fiscal year. The two largest SEC whistleblower awards in the program’s history were paid in FY 2021 — a $114 million award to one whistleblower in October 2020 and a $110 million award to another in September 2021.
  • In FY 2021, the most common violations reported by whistleblowers were Manipulation (25%), Corporate Disclosures and Financials (16%), Offering Fraud (16%), Trading and Pricing (6%), and Initial Coin Offerings and Cryptocurrencies (6%).
  • The SEC continues to attract tips from whistleblowers worldwide. In FY 2021, SEC received tips from individuals in 99 foreign countries, as well as from every state in the United States and the District of Columbia.   And approximately 20% of the whistleblowers that received awards in FY 2021 were based outside of the United States.
  • Of the whistleblowers who received awards in FY 2021, approximately 56% provided original information that caused staff to open an investigation or examination, and approximately 44% received awards because their original information significantly contributed to an already existing investigation or examination.
  • Approximately 60% of the award recipients in FY 2021 were current or former insiders of the entity about which they reported information of wrongdoing. Of those recipients, more than 75% raised their concerns internally to their supervisors, compliance personnel, or through internal reporting mechanisms, or understood that their supervisor or relevant compliance personnel knew of the violations, before reporting their information of wrongdoing to the SEC.
  • Whistleblowers who received awards in FY 2021 assisted the SEC in bringing enforcement cases involving an array of securities violations, including offering frauds, such as Ponzi schemes, false or misleading statements in a company’s offering memoranda or marketing materials, accounting violations, internal controls violations, and Foreign Corrupt Practices Act.

How to Report Information to the SEC Whistleblower Program and Qualify for an SEC Whistleblower Award

The SEC whistleblower process is lengthy and complex. See below for articles responding to frequently asked questions by SEC whistleblowers.

  1. What is the SEC Office of the Whistleblower?
  2. What are the largest SEC whistleblower awards?
  3. Can I submit a tip anonymously to the SEC Office of the Whistleblower?
  4. What exactly does anonymous whistleblowing entail?
  5. What employment protections are available for SEC whistleblowers?
  6. What violations qualify for an SEC whistleblower award?
  7. Can the SEC bring enforcement actions against international schemes?
  8. Who is an “eligible” SEC whistleblower?
  9. Can compliance personnel, auditors, officers or directors qualify for SEC whistleblower awards?
  10. Can I submit a claim if I had some involvement in the fraud or misconduct?
  11. Can culpable whistleblowers qualify for SEC whistleblower awards?
  12. Do I have to report a potential violation to my company before reporting it to the SEC?
  13. What type of evidence should I provide to the SEC?
  14. Can I use confidential company documents to expose fraud?
  15. Can I disclose secret recordings to the SEC?
  16. Can I submit a tip if I agreed to a confidentiality provision in an employment/severance agreement?
  17. When is the best time to report the fraud or misconduct to the SEC?
  18. What is “original information”?
  19. Can I submit an SEC Whistleblower claim if the SEC already has an open investigation into the matter?
  20. How might my information “lead to” a successful SEC enforcement action?
  21. What “related actions” qualify for an SEC whistleblower award?
  22. How do the best SEC whistleblower law firms advocate for whistleblowers?
  23. How do I choose the best whistleblower attorney?
  24. Why should I choose the Zuckerman Law to represent me in my SEC whistleblower claim?
  25. How do I submit a tip to the SEC Office of the Whistleblower?
  26. What happens after I submit a tip to the SEC Office of the Whistleblower?
  27. What is the full process for a whistleblower to receive an award?  
  28. What factors does the SEC consider when determining the amount of the award?
  29. What happens after I apply for an SEC whistleblower award?
  30. What is the process to appeal the SEC’s award determination?
  31. How long does it take to receive an SEC whistleblower award?

Jason Zuckerman, Principal of Zuckerman Law, litigates whistleblower retaliation, qui tam, wrongful discharge, and other employment-related claims. He is rated 10 out of 10 by Avvo, was recognized by Washingtonian magazine as a “Top Whistleblower Lawyer” in 2015 and selected by his peers to be included in The Best Lawyers in America® and in SuperLawyers.

Matthew Stock is the Director of the Whistleblower Rewards Practice at Zuckerman Law. He represents whistleblowers around the world in SEC, CFTC and IRS whistleblower claims. He is also a Certified Public Accountant, Certified Fraud Examiner and former KPMG external auditor.