SOX Whistleblowers Protection

Allen v. ARB is not all bad for Whistleblowers. In fact it should provide some help for the whistleblowers effort to get the claim heard by his or her peers.  While the Fifth Circuit’s opinion last week is being touted as a victory for publicly traded companies, the opinion does shed important light on the scope of protected activity, including a finding that typically the question of whether the whistleblower had a subjective reasonable belief will be a question of fact.  This is will enable the whistleblower to argue that his or her case should be determined by a jury trial. This will hopefully force the publicly traded company to try its case in front of the last people it wants to consider its actions — a jury of the whistleblower’s peers!SOX whistleblowerswhistleblowers helpwhistleblowers protectionwrongful termination

PROTECTED ACTIVITY; ALLEGED FRAUDULENT POLICY OF SINGLE STORE FOUND NOT TO HAVE BEEN OF SUFFICIENT MAGNITUDE TO MATTER TO A REASONABLE INVESTOR

In Frederickson v. The Home Depot, U.S.A., Inc., 2007-SOX-13 (ALJ July 10, 2007), the ALJ found that the Complainant failed to establish a prima facie case of a SOX whistleblower complaint where he did not, under the facts presented, show that he had a reasonable belief of actionable fraudulent activity. Specifically, the Complainant maintained that he had a reasonable belief of fraud relating to the recording of items as damaged rather than for “store use,” whereby refunds for such merchandise were wrongfully extracted from vendors (the Complainant had used some hooks in his department, and was instructed to record them in the store computer as damaged). The ALJ found, however, that the Complainant had no reasonable basis to believe that this policy extended beyond the store at which he worked, and that such an alleged fraudulent policy, isolated to a single store, even if true, would not have been of sufficient magnitude to believe that a reasonable investor would rely on such information.

 Moral of story — to be covered by SOX your complaint has to be of a magnitude that it affects the financial condition of the entire company.  

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Allen v. Administrative Review Board (5th Cir. 1/22/08)

Yesterday the Fifth Circuit Court of Appeals issued a ruling on a SOX Whistleblower’s appeal of a ruling by an Administrative Law Judge.  The opinion is attached.

The Fifth Circuit found that:

1)   an employee’s complaint must “definitively and specifically relate” to one of the six enumerated categories found in § 1514A: mail, wire, bank or securities fraud, any rule or regulation of the SEC, or any provision of federal law relating to fraud against shareholders;

2)   an employee’s reasonable belief of such a violation must be scrutinized under both a subjective and objective standard;

3)   an employee’s reasonable but mistaken belief that an employer engaged in conduct that constitutes a violation of one of the six enumerated categories is protected;

4)   the “objective reasonableness” standard applicable to SOX whistleblower claims is similar to the “objective reasonableness” standard applicable to Title VII retaliation claims;

5)   while that can sometimes be decided as a matter of law, if there is a genuine issue of material fact it cannot be;

6)   as to the catch all provision (federal law relating to fraud against shareholders), the employee must reasonably believe that his or her employer acted with a mental state embracing intent to deceive, manipulate, or defraud its shareholders.

7)   since one of the plaintiffs was a CPA, an “expert standard” had to be applied in reviewing the “objective standard.”

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Could this lead to much needed  SOX Whistleblowers Reforms?

In December the  United States  Senate approved Senate Bill 274.   The purpose of the  legislation is to restore and strengthen the Whistleblower Protection Act (WPA) for federal government workers. Like SOX, the original law had been gutted and discredited by 13 years of hostile court rulings, which made it nearly impossible to qualify for protection under the law.

 The legislation restores the mandate of the Whistleblower Protection Act (WPA), which was unanimously passed by Congress in 1989 and unanimously strengthened in 1994, but which since has been gutted by judicial activism that undermined congressional intent to protect for any lawful disclosure of misconduct. The amendment also strengthens the due process enforcement structure for WPA paper rights, and applies them to a broader set of harassment scenarios, such as security clearance actions, retaliatory investigations and gag orders.

SOX whistleblowers

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whistleblowers protection

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