SEC Fines California Health Insurer $340,000 For Breaking Whistleblower Protection Laws

Image courtesy of Securities and Exchange Commission

When a business is doing something shady and illegal, often the best-placed people to know about it are the employees who are supposed to carry it out. That’s why there are laws in place to protect whistle-blowers who report their employers to the appropriate authorities… and breaking those laws can sometimes land a company in as much trouble as doing the thing an employee would report them for to begin with.

That’s what just happened at California-based Health Net Inc., according to the LA Times.

Health Net wasn’t taking retaliatory action against employees after the metaphorical whistles were blown, which is illegal but very common. Instead, they were kinda sorta pre-emptively coercing employees not to blow the whistle in the first place.


Health Net employees signed agreements that tied any severance payments to agreements not to seek whistle-blower rewards, according to the Securities and Exchange Commission, and that’s a no-no.

An employee getting a severance agreement from Health Net specifically signed documents requiring that they waive any right to bring a lawsuit against the company as well as to receive any finds from “any proceeding brought based on any communication by employee to any federal, state or local government agency or department.”

“They were basically saying to employees that they couldn’t tell anyone about what the company was doing wrong if they wanted their severance,” a lawyer specializing in whistle-blower cases told the LA Times. “They were trying to muffle employees’ ability to report problems in the workplace.”

The SEC’s rewards incentives to whistle-blowers can be pretty big: the Dodd-Frank act authorizes the SEC to pay up to 30% of the money collected if fraud or securities violations are found. And that’s valuable for a couple of reasons: one, because money incentivizes people to do things the otherwise might not. And two: because whistle-blowers in some major industries can find themselves frozen out of future work in that industry, and nobody’s going to tattle if it means they won’t be able to make their rent or keep their family fed.

According to the LA Times, the SEC has paid out more than $85 million to 32 whistle-blowers since the program began five years ago.

“Financial incentives in the form of whistle-blower awards, as Congress recognized, are integral to promoting whistle-blowing to the commission,” Antonia Chion of the SEC’s Enforcement Division said in a statement. “Health Net used its severance agreements with departing employees to strip away those financial incentives, directly targeting the commission’s whistle-blower program.”

Health Net did not respond to the LA Times’ request for comment. The SEC said that the company consented to the cease-and-desist order without either admitting or denying their findings.

Whistle-blowing: Insurer gets smacked for bullying employees [Los Angeles Times]

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