SOX Whistleblowers Protection

One of the factors that has contributed to the  disappointing results for many employees submitting SOX Whistleblower Retaliation claims has been the lack of understanding of  what constitutes protected activity under the Act. While there are two different sections on protected activity in the Act, the first section is the one  overwhelmingly used by employees presenting SOX Whistleblower claims. This Section provides that reporting conduct that the employee reasonably believes constituted a violation of securities, mail, bank or wire fraud is a protected activity.  

 The next few posts will explore recent rulings on this critical element of a  Sox Whistleblower claim. 

 Welch v. Cardinal Bankshares Corp., ARB No. 05 064, ALJ No. 2003-SOX-15 (ARB May 31, 2007)  is one of the most recent rulings on the issue of what is required to establish  that a Complainant had a “reasonable basis” to believe he was reporting a violation of securities laws. In Welch, the  ARB  wrote: “The “reasonable belief” standard requires Welch to prove both that he actually believed that the SEC report overstated income and that a person with his expertise and knowledge would have reasonably believed that as well. The ARB found that an experienced CPA/CFO like the Complainant could not have reasonably believed that the quarterly SEC report presented a misleading picture of the Respondent’s financial condition because whether reported as income or as a credit to expenses, the fact remained that the Respondent had $195,000 that it previously did not have.  The ARB also found that reporting violations of accounting standards is not “ipso facto” reporting a violation of securities laws.

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