SEC fines Monolith for violating whistleblower safeguards

By Jim Tyson for CFODive.com

• The Securities and Exchange Commission fined Monolith Resources $225,000 for requiring departing employees to sign separation agreements that waived their right to receive financial awards after filing successful whistleblower claims.

• Monolith, a privately held energy and technology company based in Lincoln, Nebraska, impeded the SEC’s whistleblower program from February 2020 until March 2023 by removing incentives for employees to contact the agency about possible securities law violations, the SEC said.

• “Both private and public companies must understand that they cannot take actions or use separation agreements that in any way disincentivize employees from communicating with SEC staff” about possible violations of securities law, Jason Burt, director of the SEC’s regional office in Denver, said in a statement. Monolith neither admitted nor denied the SEC’s findings, the agency said.

The SEC during fiscal year 2022 granted $229 million in 103 whistleblower awards, the second highest total for both categories, and received more than 12,300 tips of alleged wrongdoing — a record.

The agency has granted more than $1 billion in payouts since the start of the whistleblower program in 2011. It paid a record $279 million award in May for information that led to the disgorgement by “bad actors” of more than $4 billion in ill-gotten gains and interest, the SEC said.

Tipsters may be eligible for an award when they provide original, timely, and credible information that leads to a successful enforcement action, the SEC said. Awards can range from 10% to 30% percent of the money collected when sanctions exceed $1 million.

The most common whistleblower complaint categories during fiscal year 2022 included manipulation at 21%; offering fraud, 17%; initial coin offerings and cryptocurrencies, 14%; and corporate disclosures and financials, 13%, the SEC said.

The agency during the period took actions in two instances involving efforts to impede a whistleblower from reporting securities-related misconduct.

From February 2020 until March 2023, 22 departing Monolith employees signed separation agreements that said, in the event of a government investigation, they did not have “the right to recover money damages or other individual legal or equitable relief awarded,” according to an SEC order.

The SEC said it is unaware of any instance in which the provision inhibited a former Monolith employee from reaching out to the agency, or of any effort by Monolith to enforce the provision.

Monolith revised its separation agreement in April 2023 after being contacted by SEC staff, the agency said. The company did not respond to a request for comment.