Risk & Compliance

First Penalty for Retaliation vs. Internal-only Whistleblower

SandRidge Energy fired an employee who raised concerns over the company's calculation of its reserves, the SEC charged.
David McCannDecember 21, 2016
First Penalty for Retaliation vs. Internal-only Whistleblower

The Securities and Exchange Commission announced Tuesday that SandRidge Energy, an oil and gas company, agreed to pay $1.4 million to settle charges that it retaliated against a whistleblower and used illegal language in separation agreements.

It was the first time a company was penalized for alleged actions against a whistleblower who reported concerns internally only — and not to the SEC — since the whistleblower provisions of the Dodd-Frank Act took effect in August 2011. There have been two other cases against companies for retaliating against whistleblowers who reported both internally and to the SEC.

SandRidge also was charged with using illegally restrictive language in separation agreements that impeded outgoing employees from communicating with the SEC. It was the second company in two days to settle with the commission over excessively restrictive separation agreements.

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In the SandRidge case, the SEC found that the whistleblower had expressed concerns internally about how the company was calculating its reserves. The employee was offered a promotion but turned it down, according to the SEC.

Months later, senior management concluded that the employee was disruptive and could be replaced by someone “who could do the work without creating all the internal strife,” the commission said in a press release.

SandRidge conducted no substantial investigation of the whistleblower’s concerns, the SEC found. The company did initiate an internal audit, but it was never completed.

The employee’s separation agreement, meanwhile, violated the whistleblower protection rules by using language that prohibited outgoing employees from participating in any government investigation or disclosing information potentially harmful or embarrassing to the company.

In fact, SandRidge had conducted multiple reviews of its separation agreement after the Dodd-Frank whistleblower provisions became effective yet continued to use the illegal restrictive language, the SEC charged.

“Ignoring a rule that protects communications between outgoing employees and the SEC, SandRidge flatly prohibited such contact in separation agreements,” said Shamoil Shipchandler, director of the SEC’s Fort Worth office.

SandRidge agreed to the settlement without admitting or denying the SEC’s charges. The $1.4 million payment is subject to the company’s bankruptcy plan.