Company Punished for Severance Agreements That Removed Financial Incentives for Whistleblowing
Health Net Inc. paid a $340,000 penalty to the SEC for illegally using severance agreements that barred departing employees from seeking whistleblower awards, violating Rule 21F-17, and was ordered to notify affected former employees and certify compliance.
Health Net Inc., a California-based health insurance provider, agreed to pay a $340,000 penalty to settle SEC charges for violating Rule 21F-17 by including severance agreement provisions that prohibited employees from seeking whistleblower awards. The company added the restrictive language in August 2011, shortly after the SEC explicitly banned such impediments to reporting securities violations, and only fully removed all restrictive language in 2023 after years of partial compliance. As part of the settlement, Health Net consented to a cease-and-desist order without admitting or denying wrongdoing and must notify former employees from August 12, 2011, to October 22, 2015, that they are not barred from pursuing SEC whistleblower awards, while also certifying compliance to the Enforcement Division.
Health Net Inc., a California-based health insurance provider, agreed to pay a $340,000 penalty to the SEC for illegally including severance agreement provisions that prevented departing employees from seeking whistleblower awards under Section 21F of the Securities Exchange Act. The company added the restrictive language in August 2011, just after the SEC adopted Rule 21F-17 explicitly prohibiting any action that impedes communication with the Commission about potential securities violations. Although Health Net removed the SEC-specific language in June 2013, it retained other restrictive clauses that continued to deter whistleblowing by eliminating financial incentives until fully amending the agreements in 2023. The SEC found that Health Net’s conduct directly undermined Congress’s intent to encourage whistleblowing through monetary rewards, calling the financial incentives 'integral' to the program’s effectiveness. As part of the settlement, Health Net consented to a cease-and-desist order without admitting or denying the findings. The company must now make reasonable efforts to inform all former employees who signed severance agreements between August 12, 2011, and October 22, 2015, that they are not prohibited from applying for SEC whistleblower awards. Additionally, Health Net is required to certify to the SEC Enforcement Division that it has complied with this remedial undertaking.
Exhibits & Attached Documents (1)
Extracted insights
- $340K $340,000 $100K–$1M
- person antonia chion
- person federal securities laws
- company health net inc.
- person jennie b. krasner
- person last year
- person ricky sachar
- agency sec cease-and-desist order
- agency sec investigation
- agency Securities and Exchange Commission
- Health Net Inc. agreed to pay $340,000 penalty
- Health Net Inc. violated federal securities laws
- Health Net Inc. added provision in August 2011
- Health Net Inc. removed SEC-specific language in June 2013
- Health Net Inc. amended agreements in last year
- SEC adopted rule in August 2011
- Health Net Inc. consented to SEC cease-and-desist order
- Health Net Inc. agreed to inform former employees from Aug. 12, 2011 to Oct. 22, 2015
- Jennie B. Krasner conducted SEC investigation
- Ricky Sachar supervised SEC investigation
- Antonia Chion supervised SEC investigation
The Securities and Exchange Commission today announced that a California-based health insurance provider has agreed to pay a $340,000 penalty for illegally using severance agreements requiring outgoing employees to waive their ability to obtain monetary awards from the SEC’s whistleblower program. According to the SEC’s order, Health Net Inc. violated federal securities laws by taking away from departing employees who wanted to receive severance payments and other post-employment benefits the ability to file applications for SEC whistleblower awards. Health Net added the provision in August 2011 after the SEC adopted a rule to prohibit any action to impede someone from communicating with the SEC about possible securities law violations. Health Net removed the SEC-specific language from its severance agreements in June 2013, but retained restrictive language that removed the financial incentive for reporting information until finally amending the agreements to strike all such restrictive language last year. “Financial incentives in the form of whistleblower awards, as Congress recognized, are integral to promoting whistleblowing to the Commission,” said Antonia Chion, Associate Director of the SEC Enforcement Division. “Health Net used its severance agreements with departing employees to strip away those financial incentives, directly targeting the Commission’s whistleblower program.” Health Net consented to the SEC’s cease-and-desist order without admitting or denying the findings. The company agreed to make reasonable efforts to inform former employees who signed the severance agreements from Aug. 12, 2011, to Oct. 22, 2015, that Health Net does not prohibit former employees from seeking and obtaining a whistleblower award from the SEC under Section 21F of the Securities Exchange Act. Health Net further agreed to certify to Enforcement Division staff that it has complied with this undertaking. The SEC’s investigation was conducted by Jennie B. Krasner and supervised by Ricky Sachar and Ms. Chion.
The Securities and Exchange Commission today announced that a California-based health insurance provider has agreed to pay a $340,000 penalty for illegally using severance agreements requiring outgoing employees to waive their ability to obtain monetary awards from the SEC’s whistleblower program. According to the SEC’s order, Health Net Inc. violated federal securities laws by taking away from departing employees who wanted to receive severance payments and other post-employment benefits the ability to file applications for SEC whistleblower awards. Health Net added the provision in August 2011 after the SEC adopted a rule to prohibit any action to impede someone from communicating with the SEC about possible securities law violations. Health Net removed the SEC-specific language from its severance agreements in June 2013, but retained restrictive language that removed the financial incentive for reporting information until finally amending the agreements to strike all such restrictive language last year. “Financial incentives in the form of whistleblower awards, as Congress recognized, are integral to promoting whistleblowing to the Commission,” said Antonia Chion, Associate Director of the SEC Enforcement Division. “Health Net used its severance agreements with departing employees to strip away those financial incentives, directly targeting the Commission’s whistleblower program.” Health Net consented to the SEC’s cease-and-desist order without admitting or denying the findings. The company agreed to make reasonable efforts to inform former employees who signed the severance agreements from Aug. 12, 2011, to Oct. 22, 2015, that Health Net does not prohibit former employees from seeking and obtaining a whistleblower award from the SEC under Section 21F of the Securities Exchange Act. Health Net further agreed to certify to Enforcement Division staff that it has complied with this undertaking. The SEC’s investigation was conducted by Jennie B. Krasner and supervised by Ricky Sachar and Ms. Chion.