In re Health Net

     
 
 
 UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 78590 / August 16, 2016 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-17396 
 
 
In the Matter of 
 
Health Net, Inc., 
 
Respondent. 
 
ORDER INSTITUTING CEASE-AND-
DESIST PROCEEDINGS PURSUANT TO 
SECTION 21C OF THE SECURITIES 
EXCHANGE ACT OF 1934, MAKING 
FINDINGS, AND IMPOSING A CEASE-
AND-DESIST ORDER  
  
I. 
 The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
Exchange Act of 1934 (“Exchange Act”) against Health Net, Inc. (“Health Net” or “Respondent”).  
II. 
 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
purpose of these proceedings and any other proceedings brought by or on behalf of the 
Commission, or to which the Commission is a party, and without admitting or denying the findings 
herein, except as to the Commission’s jurisdiction over it and the subject matter of these 
proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-
and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making 
Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth below. 
III. 
 On the basis of this Order and Respondent’s Offer, the Commission finds
1
 that: 
Respondent 
1. Health Net, Inc. is a Delaware corporation headquartered in Woodland Hills, 
California.  Until April 4, 2016, Health Net’s common stock was registered with the Commission 
pursuant to Section 12(b) of the Exchange Act and, until March 24, 2016, traded on the New York 
                                                 
1
  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any 
other person or entity in this or any other proceeding. 

 
 2 
Stock Exchange.  While registered with the Commission, Health Net filed periodic reports, 
including reports on Forms 10-K and 10-Q, with the Commission pursuant to Section 13(a) of the 
Exchange Act and related rules thereunder.  As of December 31, 2015, Health Net and its 
subsidiaries had approximately 8,541 employees. 
Facts 
A. Statutory and Regulatory Framework Protecting Whistleblowers 
2. The Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted on July 
21, 2010, amended the Exchange Act by adding Section 21F, “Whistleblower Incentives and 
Protection.”  The purpose of these provisions was to encourage whistleblowers to report possible 
securities law violations by providing, among other things, financial incentives and various 
confidentiality guarantees. 
3. Congress explicitly noted the critical importance of providing financial incentives 
to promote whistleblowing to the SEC as it determined that “a critical component of the 
Whistleblower Program is the minimum payout that any individual could look towards in 
determining whether to take the enormous risk of blowing the whistle in calling attention to fraud.”  
See “The Restoring American Financial Stability Act of 2010” report from the Committee on 
Banking, Housing, and Urban Affairs (April 30, 2010). 
4. To fulfill this Congressional purpose, the Commission adopted Rule 21F-17, which 
provides in relevant part: 
(a) No person may take any action to impede an individual from communicating 
directly with the Commission staff about a possible securities law violation, 
including enforcing, or threatening to enforce, a confidentiality agreement . . . with 
respect to such communications. 
Rule 21F-17 became effective on August 12, 2011. 
B. Health Net’s Severance Agreements 
 
5. Beginning prior to August 12, 2011, and continuing through October 22, 2015, 
Respondent entered into voluntary severance agreements with employees who were leaving the 
company.  A severance agreement is a contract between an employer and a former employee 
documenting the rights and responsibilities of both parties incidental to the employee’s departure. 
Respondent continues to enter into voluntary severance agreements with departing employees, but 
on October 22, 2015, it amended those agreements to strike the language at issue below. 
6. Respondent’s severance agreements included a Waiver and Release of Claims that 
listed various potential claims against Respondent that a departing employee waived as a condition 
of being paid monetary severance payments and receiving other voluntarily provided consideration 
from Respondent.   
7. In August 2011 – after the Commission adopted Rule 21F-17 – and as part of a 
regular periodic review and update of its agreements, Respondent amended the Waiver and 

 
 3 
Release of Claims.  Among other things, Respondent amended the Waiver and Release of Claims 
to specify that, while not prohibited by the severance agreement from participating in a 
government investigation, the former employee who executed the Waiver and Release of Claims 
was prohibited from filing an application for, or accepting, a whistleblower award from the 
Commission. 
8. In particular, Paragraph 4 of Respondent’s Waiver and Release of Claims expressly 
required an employee to waive:  
the right to file an application for award for original information submitted pursuant to 
Section 21F of the Securities Exchange Act of 1934. 
9. While Paragraph 8 of the Waiver and Release of Claims stated that nothing in the 
Release precludes an employee from participating in any investigation before any federal agency, 
that same Paragraph required the employee to waive his or her right to any monetary recovery 
related to any such investigation. 
10. In particular, Paragraph 8 provided that “nothing in this Release precludes 
Employee from participating in any investigation or proceeding before any federal or state agency, 
or governmental body . . . however, while Employee may file a charge and participate in any such 
proceeding, by signing this Release, Employee waives any right to bring a lawsuit against the 
Company, and waives any right to any individual monetary recovery in any such proceeding or 
lawsuit or in any proceeding brought based on any communication by Employee to any federal, 
state, or local government agency or department.” 
11. Approximately 600 employees signed agreements that contained the above 
language, which was used by Respondent from approximately August 2011 to June 2013. 
12. In June 2013, again as part of a regular periodic review and update of its 
agreements, Respondent further amended the Waiver and Release of Claims.  Respondent removed 
the language expressly prohibiting employees from applying for whistleblower awards pursuant to 
Exchange Act Section 21F.  Respondent also added Paragraph 4.a. which provided that “[n]othing 
herein shall be construed to impede the employee from communicating directly with, cooperating 
with or providing information to any government regulator.”  However, Respondent retained 
restrictions in the Waiver and Release of Claims that removed the financial incentive for its former 
employees who executed that agreement to communicate with Commission staff concerning 
possible securities law violations at Health Net.  Paragraph 5 of the revised Waiver and Release of 
Claims stated that: “nothing in this Release precludes Employee from participating in any 
investigation or proceeding before any federal or state agency or governmental body . . .however, 
while Employee may file a charge, provide information, or participate in any investigation or 
proceeding, by signing this Release, Employee, to the maximum extent permitted by law . . . 
waives any right to any individual monetary recovery . . . in any proceeding brought based on any 
communication by Employee to any federal, state or local government agency or department.” 
13. Though the Commission is unaware of any instances in which (i) a former 
employee of Respondent who executed the above noted agreements did not communicate directly 
with Commission staff about potential securities law violations or (ii) Respondent took action to 
enforce those provisions or otherwise prevent such communications, Respondent – by use of both 

 
 4 
the 2011 and 2013 agreements – 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.  Such restrictions on 
accepting financial awards for providing information regarding possible securities law violations to 
the Commission undermine the purpose of Section 21F and Rule 21F-17(a), which is to 
“encourag[e] individuals to report to the Commission,” [Adopting Release at p. 201], and violate 
Rule 21F-17(a) by impeding individuals from communicating directly with the Commission staff 
about possible securities law violations. 
Violation 
14. Through its conduct described above, Health Net violated Rule 21F-17 under the 
Exchange Act.  
Undertaking 
15. Health Net has agreed that, within 60 days from the date the Commission enters this 
Order, it will make reasonable efforts to contact Health Net former employees who signed the 
Waiver and Release of Claims from August 12, 2011 to October 22, 2015, and provide them with 
an Internet link to the order
2
 and a statement that Health Net does not prohibit former employees 
from seeking and obtaining a whistleblower award from the Securities and Exchange Commission 
pursuant to Section 21F of the Exchange Act.  In determining whether to accept the Offer, the 
Commission has considered this undertaking. 
16. Health Net has agreed to certify, in writing, compliance with the undertaking set 
forth above.  The certification shall identify the undertaking, provide written evidence of 
compliance in the form of a narrative, and be supported by exhibits sufficient to demonstrate 
compliance.  The Commission staff may make reasonable requests for further evidence of 
compliance, and Respondent agrees to provide such evidence.  The certification and supporting 
material shall be submitted to Antonia Chion, Associate Director, with a copy to the Office of the 
Chief Counsel of the Enforcement Division, no later than sixty (60) days from the date of 
completion of the undertakings. 
 
IV. 
 In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
agreed to in Respondent Health Net’s Offer. 
 Accordingly, it is hereby ORDERED that: 
A. Pursuant to Section 21C of the Exchange Act, Respondent Health Net cease and 
desist from committing or causing any violations and any future violations of Rule 21F-17 of the 
Exchange Act; 
 
B. Respondent shall, within thirty (30) days of the entry of this Order, pay a civil 
money penalty in the amount of $340,000 to the Securities and Exchange Commission for 
                                                 
2
  Health Net further agrees to provide a paper copy of the Order to any former employee who requests it. 

 
 5 
transfer to the general fund of the United States Treasury in accordance with Exchange Act 
Section 21F(g)(3).  If timely payment is not made, additional interest shall accrue pursuant to 31 
U.S.C. 3717.  Payment must be made in one of the following ways: 
 
(1) Respondent may transmit payment electronically to the Commission, which will 
provide detailed ACH transfer/Fedwire instructions upon request; 
 
(2) Respondent may make direct payment from a bank account via Pay.gov through 
the SEC website at http://www.sec.gov/about/offices/ofm.htm; or 
(3) Respondent may pay by certified check, bank cashier’s check, or United States 
postal money order, made payable to the Securities and Exchange Commission 
and hand-delivered or mailed to: 
Enterprise Services Center 
Accounts Receivable Branch 
HQ Bldg., Room 181, AMZ-341 
6500 South MacArthur Boulevard 
Oklahoma City, OK 73169 
Payments by check or money order must be accompanied by a cover letter identifying 
Health Net as a Respondent in these proceedings, and the file number of these proceedings; a copy 
of the cover letter and check or money order must be sent to Antonia Chion, Associate Director, 
Division of Enforcement, Securities and Exchange Commission, 100 F Street, N.E., Washington, 
D.C. 20549. 
 By the Commission. 
 
 
 
       Brent J. Fields 
       Secretary 

UNITED STATES OF AMERICA 

 Before the 

 SECURITIES AND EXCHANGE COMMISSION 

 

SECURITIES EXCHANGE ACT OF 1934 

Release No. 78590 / August 16, 2016 

 

ADMINISTRATIVE PROCEEDING 

File No. 3-17396 

 

 

In the Matter of 

 

Health Net, Inc., 

 

Respondent. 

 

ORDER INSTITUTING CEASE-AND-

DESIST PROCEEDINGS PURSUANT TO 

SECTION 21C OF THE SECURITIES 

EXCHANGE ACT OF 1934, MAKING 

FINDINGS, AND IMPOSING A CEASE-

AND-DESIST ORDER  

  

I. 

 The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-

and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 

Exchange Act of 1934 (“Exchange Act”) against Health Net, Inc. (“Health Net” or “Respondent”).  

II. 

 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 

of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 

purpose of these proceedings and any other proceedings brought by or on behalf of the 

Commission, or to which the Commission is a party, and without admitting or denying the findings 

herein, except as to the Commission’s jurisdiction over it and the subject matter of these 

proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-

and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making 

Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth below. 

III. 

 On the basis of this Order and Respondent’s Offer, the Commission finds1 that: 

Respondent 

1. Health Net, Inc. is a Delaware corporation headquartered in Woodland Hills, 

California.  Until April 4, 2016, Health Net’s common stock was registered with the Commission 

pursuant to Section 12(b) of the Exchange Act and, until March 24, 2016, traded on the New York 

                                                 
1  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any 

other person or entity in this or any other proceeding. 



 

 2 

Stock Exchange.  While registered with the Commission, Health Net filed periodic reports, 

including reports on Forms 10-K and 10-Q, with the Commission pursuant to Section 13(a) of the 

Exchange Act and related rules thereunder.  As of December 31, 2015, Health Net and its 

subsidiaries had approximately 8,541 employees. 

Facts 

A. Statutory and Regulatory Framework Protecting Whistleblowers 

2. The Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted on July 

21, 2010, amended the Exchange Act by adding Section 21F, “Whistleblower Incentives and 

Protection.”  The purpose of these provisions was to encourage whistleblowers to report possible 

securities law violations by providing, among other things, financial incentives and various 

confidentiality guarantees. 

3. Congress explicitly noted the critical importance of providing financial incentives 

to promote whistleblowing to the SEC as it determined that “a critical component of the 

Whistleblower Program is the minimum payout that any individual could look towards in 

determining whether to take the enormous risk of blowing the whistle in calling attention to fraud.”  

See “The Restoring American Financial Stability Act of 2010” report from the Committee on 

Banking, Housing, and Urban Affairs (April 30, 2010). 

4. To fulfill this Congressional purpose, the Commission adopted Rule 21F-17, which 

provides in relevant part: 

(a) No person may take any action to impede an individual from communicating 

directly with the Commission staff about a possible securities law violation, 

including enforcing, or threatening to enforce, a confidentiality agreement . . . with 

respect to such communications. 

Rule 21F-17 became effective on August 12, 2011. 

B. Health Net’s Severance Agreements 

 

5. Beginning prior to August 12, 2011, and continuing through October 22, 2015, 

Respondent entered into voluntary severance agreements with employees who were leaving the 

company.  A severance agreement is a contract between an employer and a former employee 

documenting the rights and responsibilities of both parties incidental to the employee’s departure. 

Respondent continues to enter into voluntary severance agreements with departing employees, but 

on October 22, 2015, it amended those agreements to strike the language at issue below. 

6. Respondent’s severance agreements included a Waiver and Release of Claims that 

listed various potential claims against Respondent that a departing employee waived as a condition 

of being paid monetary severance payments and receiving other voluntarily provided consideration 

from Respondent.   

7. In August 2011 – after the Commission adopted Rule 21F-17 – and as part of a 

regular periodic review and update of its agreements, Respondent amended the Waiver and 



 

 3 

Release of Claims.  Among other things, Respondent amended the Waiver and Release of Claims 

to specify that, while not prohibited by the severance agreement from participating in a 

government investigation, the former employee who executed the Waiver and Release of Claims 

was prohibited from filing an application for, or accepting, a whistleblower award from the 

Commission. 

8. In particular, Paragraph 4 of Respondent’s Waiver and Release of Claims expressly 

required an employee to waive:  

the right to file an application for award for original information submitted pursuant to 

Section 21F of the Securities Exchange Act of 1934. 

9. While Paragraph 8 of the Waiver and Release of Claims stated that nothing in the 

Release precludes an employee from participating in any investigation before any federal agency, 

that same Paragraph required the employee to waive his or her right to any monetary recovery 

related to any such investigation. 

10. In particular, Paragraph 8 provided that “nothing in this Release precludes 

Employee from participating in any investigation or proceeding before any federal or state agency, 

or governmental body . . . however, while Employee may file a charge and participate in any such 

proceeding, by signing this Release, Employee waives any right to bring a lawsuit against the 

Company, and waives any right to any individual monetary recovery in any such proceeding or 

lawsuit or in any proceeding brought based on any communication by Employee to any federal, 

state, or local government agency or department.” 

11. Approximately 600 employees signed agreements that contained the above 

language, which was used by Respondent from approximately August 2011 to June 2013. 

12. In June 2013, again as part of a regular periodic review and update of its 

agreements, Respondent further amended the Waiver and Release of Claims.  Respondent removed 

the language expressly prohibiting employees from applying for whistleblower awards pursuant to 

Exchange Act Section 21F.  Respondent also added Paragraph 4.a. which provided that “[n]othing 

herein shall be construed to impede the employee from communicating directly with, cooperating 

with or providing information to any government regulator.”  However, Respondent retained 

restrictions in the Waiver and Release of Claims that removed the financial incentive for its former 

employees who executed that agreement to communicate with Commission staff concerning 

possible securities law violations at Health Net.  Paragraph 5 of the revised Waiver and Release of 

Claims stated that: “nothing in this Release precludes Employee from participating in any 

investigation or proceeding before any federal or state agency or governmental body . . .however, 

while Employee may file a charge, provide information, or participate in any investigation or 

proceeding, by signing this Release, Employee, to the maximum extent permitted by law . . . 

waives any right to any individual monetary recovery . . . in any proceeding brought based on any 

communication by Employee to any federal, state or local government agency or department.” 

13. Though the Commission is unaware of any instances in which (i) a former 

employee of Respondent who executed the above noted agreements did not communicate directly 

with Commission staff about potential securities law violations or (ii) Respondent took action to 

enforce those provisions or otherwise prevent such communications, Respondent – by use of both 



 

 4 

the 2011 and 2013 agreements – 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.  Such restrictions on 

accepting financial awards for providing information regarding possible securities law violations to 

the Commission undermine the purpose of Section 21F and Rule 21F-17(a), which is to 

“encourag[e] individuals to report to the Commission,” [Adopting Release at p. 201], and violate 

Rule 21F-17(a) by impeding individuals from communicating directly with the Commission staff 

about possible securities law violations. 

Violation 

14. Through its conduct described above, Health Net violated Rule 21F-17 under the 

Exchange Act.  

Undertaking 

15. Health Net has agreed that, within 60 days from the date the Commission enters this 

Order, it will make reasonable efforts to contact Health Net former employees who signed the 

Waiver and Release of Claims from August 12, 2011 to October 22, 2015, and provide them with 

an Internet link to the order2 and a statement that Health Net does not prohibit former employees 

from seeking and obtaining a whistleblower award from the Securities and Exchange Commission 

pursuant to Section 21F of the Exchange Act.  In determining whether to accept the Offer, the 

Commission has considered this undertaking. 

16. Health Net has agreed to certify, in writing, compliance with the undertaking set 

forth above.  The certification shall identify the undertaking, provide written evidence of 

compliance in the form of a narrative, and be supported by exhibits sufficient to demonstrate 

compliance.  The Commission staff may make reasonable requests for further evidence of 

compliance, and Respondent agrees to provide such evidence.  The certification and supporting 

material shall be submitted to Antonia Chion, Associate Director, with a copy to the Office of the 

Chief Counsel of the Enforcement Division, no later than sixty (60) days from the date of 

completion of the undertakings. 

 

IV. 

 In view of the foregoing, the Commission deems it appropriate to impose the sanctions 

agreed to in Respondent Health Net’s Offer. 

 Accordingly, it is hereby ORDERED that: 

A. Pursuant to Section 21C of the Exchange Act, Respondent Health Net cease and 

desist from committing or causing any violations and any future violations of Rule 21F-17 of the 

Exchange Act; 

 

B. Respondent shall, within thirty (30) days of the entry of this Order, pay a civil 

money penalty in the amount of $340,000 to the Securities and Exchange Commission for 

                                                 
2  Health Net further agrees to provide a paper copy of the Order to any former employee who requests it. 



 

 5 

transfer to the general fund of the United States Treasury in accordance with Exchange Act 

Section 21F(g)(3).  If timely payment is not made, additional interest shall accrue pursuant to 31 

U.S.C. 3717.  Payment must be made in one of the following ways: 

 

(1) Respondent may transmit payment electronically to the Commission, which will 

provide detailed ACH transfer/Fedwire instructions upon request; 

 

(2) Respondent may make direct payment from a bank account via Pay.gov through 

the SEC website at http://www.sec.gov/about/offices/ofm.htm; or 

(3) Respondent may pay by certified check, bank cashier’s check, or United States 

postal money order, made payable to the Securities and Exchange Commission 

and hand-delivered or mailed to: 

Enterprise Services Center 

Accounts Receivable Branch 

HQ Bldg., Room 181, AMZ-341 

6500 South MacArthur Boulevard 

Oklahoma City, OK 73169 

Payments by check or money order must be accompanied by a cover letter identifying 

Health Net as a Respondent in these proceedings, and the file number of these proceedings; a copy 

of the cover letter and check or money order must be sent to Antonia Chion, Associate Director, 

Division of Enforcement, Securities and Exchange Commission, 100 F Street, N.E., Washington, 

D.C. 20549. 

 By the Commission. 

 

 

 

       Brent J. Fields 

       Secretary