SEC Fines Health Net $340,000 for Anti-Whistleblower Agreements

Wednesday, August 31, 2016
By Miles Indest, J.D./M.B.A.; Law Clerk, The Health Law Firm

On August 16, 2016, Health Net Inc. agreed to pay a $340,000 penalty to the United States Securities and Exchange Commission (SEC) for allegedly using severance agreements to restrict the rights of whistleblowers. The health insurance company paid the penalty without admitting or denying the SEC’s allegations.


The Dodd-Frank Whistleblower Program.

After the 2008 financial crisis, the U.S. Congress passed the Dodd-Frank Wall Street Reform and Protection (Dodd-Frank) Act to combat financial fraud in our capital markets. Pub. L. No. 111-203, 124 Stat. 1376 (2010). Leading up to that crisis, several employees who had reported financial wrongdoing at banks were either ignored or fired.

The Dodd-Frank Act expanded whistleblower incentives and protection through two measures. First, whistleblowers who provide the SEC with original information that leads to a successful enforcement action may receive bounty awards. Second, whistleblowers are protected from retaliation by their employers in connection with certain types of reporting activity.


Severance Packages Were Conditioned on Whistleblower Waivers, SEC Asserts.

Under Rule 21F-17, if the SEC recovers $1 million or more in sanctions from a successful enforcement action, qualified whistleblowers can receive between 10 to 30 percent of the total amount recovered. Health Net’s severance agreements required departing employees to waive their right to a monetary award for providing tips through the whistleblower program, according to the SEC.

Such whistleblower award waivers violate federal securities law by restricting a key incentive of the Dodd-Frank whistleblower program. According to the SEC release, Health Net “directly targeted the SEC’s whistleblower program by removing the critically important financial incentives that are intended to encourage persons to communicate directly with the Commission staff about possible securities law violations.”

This SEC penalty regarding Health Net’s severance agreement demonstrates that the agency’s strong protection of whistleblowers extends to the health care industry. Health care organizations and practitioners should use this warning to proactively review its severance agreements and employment contracts to ensure compliance with Dodd-Frank.


Contact a Health Care Attorney Experienced in Negotiating and Evaluating Physician and Health Professional’s Business Transactions.

At the Health Law Firm we provide legal services for all health care providers and professionals. This includes physicians, nurses, dentists, psychologists, psychiatrists, mental health counselors, durable medical equipment suppliers (DME), medical students and interns, hospitals, ambulatory surgical centers, pain management clinics, nursing homes, and any other health care provider.

The services we provide include reviewing and negotiating contracts, preparing contracts, helping employers and employees enforce contracts, advice on setting aside or voiding contracts, litigation of contracts (in start or federal court), business transactions, professional license defense, opinion letters, representation in investigations, fair hearing defense, representation in peer review and clinical privileges hearings, litigation of restrictive covenant (covenants not to compete), Medicare and Medicaid audits, commercial litigation, and administrative hearings.

To contact The Health Law Firm, please call (407) 331-6620 or (850) 439-1001 and visit our website at www.TheHealthLawFirm.com.
        

About the Author: Miles Indest, J.D./M.B.A., graduated in May 2016 from Tulane University Law School and the Freeman School of Business. He has served three years as a member of Tulane Law Review and served one year as the Writing Skills Chair of Tulane Moot Court.


Sources:

Germaine, Carmen. “SEC Fines Another Co. Over Anti-Whistleblower Agreements.” Law360. (Aug. 16, 2016). Web.

Hastings, Kathryn. “Keeping Whistleblowers Quiet: Addressing Employer Agreements To Discourage Whistleblowing.” 90 T.L.R. 495 (Dec. 2015). Print.


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8/31/2016

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