SOX Whistleblowers Protection

In Deremer v. Gulfmark Offshore Inc., 2006-SOX-2 (ALJ June 29, 2007), the ALJ reviewed the still evolving law on what constitutes protected activity under SOX. The ALJ started by observing that the law includes a “reasonable belief” test, which must be scrutinized under both subjective and objective standards: the complainant must have actually believed that the employer was in violation of the relevant law or regulations, and that belief must be reasonable. Reasonable belief is determined based on the knowledge available to a reasonable person in the circumstances with the employee’s training and experience. The ALJ then observed that fraud is an integral element under the SOX whistleblower provision, which in the securities area, may include dissemination of false information in to the market on which a reasonable investor may rely. The intent to deceive is implicit. The ALJ noted a split in authority over whether SOX whistleblower protection is limited to fraud “against shareholders,” and after reviewing the nature of that split, found that his conclusion was consistent with that of the ARB B that an allegation of “shareholder fraud” is an essential element of a cause of action under SOX. The ALJ concluded, therefore, that materiality was required for alleged conduct to rise to the level of shareholder fraud.

SOX whistleblowers

whistleblowers help

whistleblowers protection

wrongful termination

The ALJ wrote: Therefore, under subjective and objective standards, Complainant must actually and reasonably believe, based on the knowledge available to a reasonable person, that Respondent intentionally acted fraudulently, and that such conduct was sufficiently material so as to constitute fraud against the shareholders. In cases where allegations of shareholder fraud are based on potential or actual dissemination of fraudulent information, there must exist a “substantial likelihood” that the disclosure of the omitted or misstated information would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available. Slip op. at 50.