Yesterday's post again discussed whether the Securities and Exchange Commission exceeded its authority in adopting Rule 21F-17(a), which provides:

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 (other than agreements dealing with information covered by § 240.21F-4(b)(4)(i) and § 240.21F-4(b)(4)(ii) of this chapter related to the legal representation of a client) with respect to such communications.

I did find one decision from the Southern District of New York which rejected the argument that the SEC exceeded its authority "because Rule 21F-17 applies to any “person,” while Section 21F of Exchange Act applies only to whistleblower-employees". United States Sec. & Exch. Comm'n v. Collector's Coffee Inc., No. 19 CIV. 4355 (VM), 2021 WL 3082209 (S.D.N.Y. July 21, 2021). The court arrived at this conclusion because "[t]he statutory definition of 'Whistleblower' refers to 'any individual' and is not limited to those persons in an employee-employer relationship".

I disagree. As I have pointed out in previous posts, Section 21F of the Exchange Act prohibits retaliation by employers. Specifically, the statute provides that an "employer" may "not discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against, a whistleblower in the terms and conditions of employment . . .". 15 U.S.C. § 78u-6. The statute does not say that "no person" may do these things. Rather, it states "no employer" may do these things. Further, the verb "impede" is found nowhere in the statute. As I have previously noted, the SEC's use of the verb "impede" is impossibly broad. See What, If Anything, Impedes The SEC's Whistleblower Rule? Amazingly, the SEC has even taken the position that a person can be impeded after the fact. See Has The SEC Put The Proverbial Horse Before The Cart?

Although a case can be made that the SEC exceeded its authority in adopting Rule 21F-17, the SEC is actively enforcing the rule. It remains to be seen whether the SEC's authority will be successfully challenged.