Can’t we just ask the regulator?: Difference between revisions

This rule says no-one may not stifle “whistleblowers”: citizens who wish to give the [[Securities and Exchange Commission|SEC]] information about possible securities law violations. Where this leads to conviction, whistleblowers stand to be rewarded.  

We don’t know the specifics, but the settlement doesn’t seem to suggest that JPMorgan intended to, or actually did, enforce its NDAs to prevent anyone reporting securities violations. To the contrary, JPMorgan seems to have been rather good about self-reporting, whenever the need arose. The SEC does not allege anything was concealed from it. Rather, its case was that JPMorgan’s confidentiality agreements ''might'' have had that effect, or ''might'' have been used this way.  

That an NDA ''might'' have a “chilling effect” on a whistleblower: that was enough of a pretext for the SEC to extract US$18m from JPMorgan. The threat of further action seems to have been enough of a pretext for JPM to just pay up. This all seems rather unfortunate.

Firstly, be assured a wholesale re-engineering of the confidentiality agreement standard will shortly descend on us. Make no mistake, they will not be shorter. Downtrodden inhouse counsel, who already spend far too much time on NDAs (in that they spend any time at all) will not be cheered. The NDA is a well-understood beast: its principles are standardised, even if their articulation is not. A universal principle is “you may disclose confidential information to regulators if asked, or compelled, to do so”.

 

 

JPMorgan’s standard NDA — not, alas, the [[OneNDA]] — said:

Now as far as market standards go this is pretty much on the money and, for a US legal document, blessedly short: you can ''answer questions'' from regulators — with or without compulsion — but you can’t ''volunteer'' things they did not ask for. Well: it does not say you ''can'' volunteer things, at any rate. How this might be construed by a court if tested is not the point: the chilling effect — the tendency to prevent disclosure in the first place — is all the SEC needed.

 

Editorialising for a bit — I know, right: who? me? — then unless JPMorgan wilfully meant to prevent whistleblowing, this seems like a ''bad'' ''precedent''. Nothing in the {{Plainlink|https://www.sec.gov/news/press-release/2024-7|SEC’s press release}} indicates any actual wilfulness on the bank’s part. So firstly, JPMorgan is being fined, basically, for agreeing to a pretty standard NDA.

Secondly — a point Matt Levine makes with typical brio — is that this means that a securities law violation you can blow your whistle about — and be rewarded under the whistleblowing programme for — is ''the very existence of a non-compliant NDA itself''.  

The NDA contravenes Rule 21F-17(a), after all. It is a breach of securities law. You stand to gain by reporting it, in ostensible breach of its terms.

But as above, in as much as they cleave to the market standard of only permitting disclosure to regulators when asked, ''all'' standard NDAs breach Rule 21F-17(a). Not because anyone meant to chill whistleblowers, but because this ''never occurred'' to anyone before. It would be interesting to know who planted the idea of this enforcement in the SEC caseworker’s head. We have all heard of lawyers chasing ambulances: here is the stranger case of an ambulance chasing lawyers.  

In another facet of US justice administration, JPMorgan has agreed to the settlement, a civil prosecution, without admission or denial of liability — no doubt taking the pragmatic view that USD$18m fine is a doddle compared to the administrative time and burnt marital capital that it would take to contest such a charge. But in doing so, Morgan has acquiesced to a bad principle, thereby enacting it on everyone else.

Here is where the regulatory reluctance to flesh out your own rules creates work for lawyers without reason. If we take it as read that JPMorgan’s infraction was formal and not substantive — then surely the practical thing for SEC to do would be to warn them off and issue some agreed-upon wording to the industry: say, as long as your NDA provides that “nothing in this agreement is intended to prevent any person reporting possible legal violations to any regulatory authority” then you give the remainder of the market clear guidance for which lawyers are not required, and [[JPMorgan]] shall not have suffered in vain.