Acadia, AppFolio, AKA Brands Among 7 Publicly Listed Firms Charged By SEC Over Whistleblower Protection Violation

The Securities and Exchange Commission (SEC) has announced settled charges against seven public companies for using employment, separation, and other agreements that violated rules prohibiting actions to impede whistleblowers from reporting potential misconduct to the regulator.

The seven companies have cumulatively agreed to pay over $3 million in civil penalties. The highest penalty will be paid by Acadia Healthcare Company, Inc. (ACHC) at $1.386 million. AppFolio Inc. (APPF) agreed to pay $692,250 while AKA Brands Holdings Corp. (AKA) agreed to pay $399,750 in civil penalties.

TransUnion (TRU) agreed to pay a civil penalty of $312,000 while LSB Industries (LXU) agreed to pay a $156,000 civil penalty. IDEX Corporation (IEX) will be paying a penalty of $75,000 and Smart for Life, Inc. (SMFL) agreed to pay $19,500.

The regulator said that these companies required employees to waive their right to possible whistleblower monetary awards. “This severely impedes would-be whistleblowers from reporting potential securities law violations to the SEC,” it added.

The SEC further stated that each of these firms were each charged with violating whistleblower protection Rule 21F-17(a), which prohibits any action to impede an individual from communicating directly with the SEC staff about a possible securities law violation.

Creola Kelly, Chief of the SEC’s Office of the Whistleblower said ensuring that potential whistleblowers can communicate directly with the Commission is a critical part of the SEC’s oversight mandate.

The companies have agreed not to violate this rule in the future and have taken steps to remediate the violations, including making changes to the relevant agreements, the regulator said.

Interestingly, the SEC ruling failed to make a major dent in investor perceptions for most of the stocks. Except for Smart for Life Inc shares that fell over 7%, most of the stocks failed to elicit any major negative reactions. TransUnion stock, in fact, rose 2.5% on Monday.

Recently, the SEC announced settled charges against Esmark Inc. and its founder, chairman, and former CEO, James P. Bouchard, for announcing a tender offer to purchase United States Steel Corporation (X) for $35 per share even though the firm lacked the financial means to conclude the transaction.

The regulator said that without admitting or denying its findings, Esmark and Bouchard have agreed to cease and desist from committing any future violations of the stated provisions and to pay civil penalties of $500,000 and $100,000, respectively.

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