2015-04-01 SEC Press pdf 155 KB 9,829 chars

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

Exhibit of SEC: Companies Cannot Stifle Whistleblowers in Confidentiality Agreements

summary

KBR, Inc. violated SEC Rule 21F-17 by using a confidentiality statement in internal investigations that improperly restricted employees from communicating with the SEC about potential securities violations, leading to a cease-and-desist order, a $130,000 penalty, and mandatory policy reforms—even though no employee was actually blocked from reporting.

paragraph

KBR, Inc., a Delaware corporation whose stock trades on the NYSE, agreed to a cease-and-desist order with the SEC for violating Rule 21F-17 by using a confidentiality statement that prohibited employees from discussing internal investigation details without Law Department approval. Although no employee was prevented from reporting or retaliated against, the language of the statement undermined the Dodd-Frank Act’s intent to encourage direct whistleblower communications with the SEC. KBR paid a $130,000 civil penalty, amended its policy to explicitly permit protected disclosures, notified all affected U.S. employees of their rights, and must submit a compliance certification to the SEC within 60 days.

narrative

KBR, Inc., a Delaware corporation headquartered in Houston and listed on the NYSE, consented to an SEC cease-and-desist order for violating Rule 21F-17 by using a standard confidentiality statement in internal investigations that barred employees from discussing interview details without prior authorization from its Law Department. Although the SEC found no evidence that any employee was actually prevented from reporting a securities violation or faced retaliation, the language of the statement inherently impeded protected communications, contradicting the Dodd-Frank Act’s purpose of encouraging direct whistleblower disclosures to regulators. KBR did not admit guilt but agreed to the order solely to resolve the matter, paying a $130,000 civil penalty to the U.S. Treasury. As part of its remedial actions, KBR revised its confidentiality statement to explicitly permit employees to report potential violations to government agencies, including the SEC, without restriction. The company also notified all U.S. employees who had signed the prior version of the confidentiality statement of their rights under federal whistleblower protections. KBR is required to submit a compliance certification to the SEC within 60 days of completing these undertakings, and failure to pay the penalty on time triggers interest under 31 U.S.C. 3717. The case underscores the SEC’s enforcement focus on policies that create a chilling effect on whistleblower reporting, even absent actual retaliation.

Enriched metadata

Scheme: obstruction (100%)
Outcome: settled
Civil penalty: $130,000

Classified obstruction(confidence 100%). No EDGAR filing fingerprint (criminal/DOJ-side scheme). detection rule →

Extracted insights

Dollar amounts 1

$130K $130,000 $100K–$1M

Entities 2

company kbr, inc.
agency Securities and Exchange Commission

Triples 7

Securities and Exchange Commission deems appropriate cease-and-desist proceedings be instituted
Commission has determined to accept Offer of Settlement
KBR has submitted Offer of Settlement
KBR is Delaware corporation headquartered in Houston, Texas
KBR files periodic reports, including Forms 10-K and 10-Q, with the Commission
Commission adopted Rule 21F-17
Rule 21F-17 became effective on August 12, 2011

PDF

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

Text layers

Extracted body text (9,829c)

UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION

SECURITIES EXCHANGE ACT OF 1934
Release No. 74619 / April 1, 2015

ADMINISTRATIVE PROCEEDING
File No. 3-16466

In the Matter of

KBR, 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 KBR, Inc. (“KBR” or “Respondent”).
II.
In anticipation of the institution of these proceedings, KBR 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. KBR, Inc. is a Delaware corporation headquartered in Houston, Texas. KBR’s
common stock is registered with the Commission pursuant to Section 12(b) of the Exchange Act
and trades on the New York Stock Exchange. KBR files 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.

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
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 congressional purpose underlying these provisions was “to encourage
whistleblowers to report possible violations of the securities laws by providing financial incentives,
prohibiting employment-related retaliation, and providing various confidentiality guarantees.” See
“Implementation of the Whistleblower Provisions of Section 21F of the Securities Exchange Act of
1934,” Release No. 34-64545, at p. 198 (Aug. 12, 2011) (the “Adopting Release”).
3. 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. KBR’s Confidentiality Statement

4. As part of its compliance program, KBR regularly receives complaints and
allegations from its employees of potential illegal or unethical conduct by KBR or its employees,
including allegations of potential violations of the federal securities laws. KBR’s practice is to
conduct internal investigations of these allegations. KBR investigators typically interview KBR
employees (including the employees who originally lodged the complaint or allegation) as part of
the internal investigations.
5. Prior to the promulgation of Rule 21F-17 and continuing into the time that Rule
21F-17 has been in effect, KBR has used a form confidentiality statement as part of these internal
investigations. Although use of the form confidentiality statement is not required by KBR policy,
the statement is included as an enclosure to the KBR Code of Business Conduct Investigation
Procedures manual, and KBR investigators have had witnesses sign the statement at the start of an
interview.

6. The form confidentiality statement that KBR has used before and since the SEC
adopted Rule 21F-17 requires witnesses to agree to the following provisions:
I understand that in order to protect the integrity of this review, I am prohibited
from discussing any particulars regarding this interview and the subject matter
discussed during the interview, without the prior authorization of the Law
Department. I understand that the unauthorized disclosure of information may be
grounds for disciplinary action up to and including termination of employment.

3
7. Though the Commission is unaware of any instances in which (i) a KBR employee
was in fact prevented from communicating directly with Commission Staff about potential
securities law violations, or (ii) KBR took action to enforce the form confidentiality agreement or
otherwise prevent such communications, the language found in the form confidentiality statement
impedes such communications by prohibiting employees from discussing the substance of their
interview without clearance from KBR’s law department under penalty of disciplinary action
including termination of employment. This language undermines the purpose of Section 21F and
Rule 21F-17(a), which is to “encourage[e] individuals to report to the Commission.” Adopting
Release at p. 201.
Remedial Steps Taken By KBR
8. KBR has amended its confidentiality statement to include the following statement:
Nothing in this Confidentiality Statement prohibits me from reporting possible
violations of federal law or regulation to any governmental agency or entity,
including but not limited to the Department of Justice, the Securities and Exchange
Commission, the Congress, and any agency Inspector General, or making other
disclosures that are protected under the whistleblower provisions of federal law or
regulation. I do not need the prior authorization of the Law Department to make
any such reports or disclosures and I am not required to notify the company that I
have made such reports or disclosures.

Violation
9. Through its conduct described above, KBR violated Rule 21F-17 under the
Exchange Act.
Undertaking
10. KBR has agreed to make reasonable efforts to contact KBR employees in the
United States who signed the confidentiality statement from August 21, 2011 to the present,
providing them with a copy of this Order and a statement that KBR does not require the employee
to seek permission from the General Counsel of KBR before communicating with any
governmental agency or entity, including but not limited to the Department of Justice, the
Securities and Exchange Commission, the Congress, and any agency Inspector General, regarding
possible violations of federal law or regulation. In determining whether to accept the Offer, the
Commission has considered this undertaking.
11. KBR 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 David Peavler, Associate Regional Director, with a copy to the Office of Chief
Counsel of the Enforcement Division, no later than sixty (60) days from the date of the completion
of the undertakings.

4
IV.
In view of the foregoing, the Commission deems it appropriate to impose the sanctions
agreed to in Respondent KBR’s Offer.
Accordingly, it is hereby ORDERED that:
A. Pursuant to Section 21C of the Exchange Act, Respondent KBR 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 $130,000 to the Securities and Exchange Commission for
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 KBR
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 David L. Peavler, Associate Regional
Director, Fort Worth Regional Office, Division of Enforcement, Securities and Exchange
Commission, 801 Cherry Street, Suite 1900, Fort Worth, Texas, 76102.
By the Commission.

Brent J. Fields
Secretary

OCR text (9,986c · tika · 95% conf)

UNITED STATES OF AMERICA

Before the

SECURITIES AND EXCHANGE COMMISSION

SECURITIES EXCHANGE ACT OF 1934

Release No. 74619 / April 1, 2015

ADMINISTRATIVE PROCEEDING

File No. 3-16466

In the Matter of

KBR, 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

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 KBR, Inc. (“KBR” or “Respondent”).

II.

In anticipation of the institution of these proceedings, KBR 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. KBR, Inc. is a Delaware corporation headquartered in Houston, Texas. KBR’s

common stock is registered with the Commission pursuant to Section 12(b) of the Exchange Act

and trades on the New York Stock Exchange. KBR files 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.

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.

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 congressional purpose underlying these provisions was “to encourage

whistleblowers to report possible violations of the securities laws by providing financial incentives,

prohibiting employment-related retaliation, and providing various confidentiality guarantees.” See

“Implementation of the Whistleblower Provisions of Section 21F of the Securities Exchange Act of

1934,” Release No. 34-64545, at p. 198 (Aug. 12, 2011) (the “Adopting Release”).

3. 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. KBR’s Confidentiality Statement

4. As part of its compliance program, KBR regularly receives complaints and

allegations from its employees of potential illegal or unethical conduct by KBR or its employees,

including allegations of potential violations of the federal securities laws. KBR’s practice is to

conduct internal investigations of these allegations. KBR investigators typically interview KBR

employees (including the employees who originally lodged the complaint or allegation) as part of

the internal investigations.

5. Prior to the promulgation of Rule 21F-17 and continuing into the time that Rule

21F-17 has been in effect, KBR has used a form confidentiality statement as part of these internal

investigations. Although use of the form confidentiality statement is not required by KBR policy,

the statement is included as an enclosure to the KBR Code of Business Conduct Investigation

Procedures manual, and KBR investigators have had witnesses sign the statement at the start of an

interview.

6. The form confidentiality statement that KBR has used before and since the SEC

adopted Rule 21F-17 requires witnesses to agree to the following provisions:

I understand that in order to protect the integrity of this review, I am prohibited

from discussing any particulars regarding this interview and the subject matter

discussed during the interview, without the prior authorization of the Law

Department. I understand that the unauthorized disclosure of information may be

grounds for disciplinary action up to and including termination of employment.

7. Though the Commission is unaware of any instances in which (i) a KBR employee

was in fact prevented from communicating directly with Commission Staff about potential

securities law violations, or (ii) KBR took action to enforce the form confidentiality agreement or

otherwise prevent such communications, the language found in the form confidentiality statement

impedes such communications by prohibiting employees from discussing the substance of their

interview without clearance from KBR’s law department under penalty of disciplinary action

including termination of employment. This language undermines the purpose of Section 21F and

Rule 21F-17(a), which is to “encourage[e] individuals to report to the Commission.” Adopting

Release at p. 201.

Remedial Steps Taken By KBR

8. KBR has amended its confidentiality statement to include the following statement:

Nothing in this Confidentiality Statement prohibits me from reporting possible

violations of federal law or regulation to any governmental agency or entity,

including but not limited to the Department of Justice, the Securities and Exchange

Commission, the Congress, and any agency Inspector General, or making other

disclosures that are protected under the whistleblower provisions of federal law or

regulation. I do not need the prior authorization of the Law Department to make

any such reports or disclosures and I am not required to notify the company that I

have made such reports or disclosures.

Violation

9. Through its conduct described above, KBR violated Rule 21F-17 under the

Exchange Act.

Undertaking

10. KBR has agreed to make reasonable efforts to contact KBR employees in the

United States who signed the confidentiality statement from August 21, 2011 to the present,

providing them with a copy of this Order and a statement that KBR does not require the employee

to seek permission from the General Counsel of KBR before communicating with any

governmental agency or entity, including but not limited to the Department of Justice, the

Securities and Exchange Commission, the Congress, and any agency Inspector General, regarding

possible violations of federal law or regulation. In determining whether to accept the Offer, the

Commission has considered this undertaking.

11. KBR 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 David Peavler, Associate Regional Director, with a copy to the Office of Chief

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

of the undertakings.

IV.

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

agreed to in Respondent KBR’s Offer.

Accordingly, it is hereby ORDERED that:

A. Pursuant to Section 21C of the Exchange Act, Respondent KBR 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 $130,000 to the Securities and Exchange Commission for

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 KBR

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 David L. Peavler, Associate Regional

Director, Fort Worth Regional Office, Division of Enforcement, Securities and Exchange

Commission, 801 Cherry Street, Suite 1900, Fort Worth, Texas, 76102.

By the Commission.

Brent J. Fields

Secretary