Houston-based KBR to pay $130K penalty in whistleblowers dispute, confidential agreements

WASHINGTON – A global technology and engineering firm has agreed to pay a $130,000 penalty in the first action taken for an alleged violation of a whistleblower protection rule enacted in response to the recent financial crisis, federal regulators said Wednesday.

The Securities and Exchange Commission announced the action against Houston-based KBR Inc., which without admitting or denying the charges agreed to stop using improperly restrictive language in certain confidentiality agreements about internal investigations.

Regulators say employees were warned they could face discipline or be fired if they discussed matters with outside parties without KBR’s legal department approval. The SEC says the company has since added language to make clear that employees are free to report possible violations without KBR’s approval or fear of retaliation.

KBR, a major defence contractor that was once the engineering and construction arm of Halliburton, has faced several lawsuits related to its work in Iraq.

“The SEC’s order acknowledges that it is not aware of KBR having ever prevented anyone from reporting to the SEC, nor has the company taken any action to enforce the agreement and that is because we have never done so,” KBR President and CEO Stuart Bradie said in a statement. “We are pleased to have amicably resolved this matter and look forward to putting it behind us.”

While the penalty amount is small, the case is significant as the SEC’s first action against a company under a provision of a 2010 law overhauling Wall Street and financial regulation. The rule prohibits companies from taking any action to block whistleblowers from reporting possible securities-law violations to the agency.

The action against KBR sends a message to corporate America that all companies using confidentiality agreements should review them to ensure they don’t contain language that violates the rule, SEC Enforcement Director Andrew Ceresney told reporters on a conference call.

He said that also applies to other kinds of company agreements with employees beyond confidentiality accords, such as employment or severance agreements.

In the KBR case, by requiring current and former employees to sign confidentiality agreements compelling them to notify the company before contacting the SEC, KBR “potentially discouraged employees from reporting securities violations to us,” Ceresney said.

Requiring employees to identify themselves to the company as whistleblowers conflicts with the right of whistleblowers to remain anonymous, he said.

Stephen Kohn, a Washington attorney whose law firm represents whistleblowers, said the SEC’s action “signals the advancement of nationwide corporate reform. Transparency has triumphed over censorship.”

Kohn said the SEC’s investigation of KBR’s confidentiality agreements was triggered by a lawsuit filed former KBR employee Harry Barko, who was represented by Kohn’s firm.

“This is an historic day for whistleblowers,” Kohn said in a statement. “Corporations have a history of silencing employees by forcing them to sign highly restrictive non-disclosure agreements.”

A high-profile case involving a KBR whistleblower has moved through the legal system to reach the U.S. Supreme Court. The high court justices are considering whether the whistleblower, former KBR employee Benjamin Carter, can move forward with a lawsuit claiming that the company falsely billed the government for work in Iraq. The justices heard arguments earlier this year on KBR’s appeal of a lower court decision that reinstated Carter’s suit under the federal False Claims Act.

The Supreme Court is expected to rule later this year.


Heidgerd reported from Dallas.