SOX Whistleblowers Protection

The latest step in the development of a whistleblower format for companies operating in the E.U. has come from Germany.  German authorities have issued new whistleblower guidelines, which allow U.S. companies to implement Sarbanes-Oxley hotline compliance for U.S. public companies, and for privately held companies with branches in Germany.

The regional German data protection authorities’ working group, referred to as Düsseldorfer Kreis (or “Düsseldorf Circle”) met in late April 2007 and issued the guidelines, which are now translated into English.

The new guidelines note that the German Data Protection Act does impose certain obligations on the company, which include

• confidential reporting, but allowance for anonymous reporting;
• notice to employees of the program;
• notice to the accused person of facts alleged, with delays in same if evidence needs to be preserved;
• permitted use of third parties as data processors for the program;
• limitations on unnecessary internal data transfer or to third parties unless criminal proceedings;
• security processes and procedures to protect unauthorized access to the data;
• data storage limitations, including deletion/archiving (generally two mos. after close of investigation unless discipline, litigation or criminal proceedings).

These obligations are generally consistent with previous whistleblower guidance issued by the E.C. Art. 29 Working Party on Data Protection (W.P. 117) last year.

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In response to a recent post, the question was asked: is Federal Court the better forum to help a SOX Whistleblower obtain relief for wrongful termination because he blew the whistle on accounting corruption in a publicly traded corporation?

 We think that the answer is yes and no. It does appear that SOX Whistleblowers do enjoy a more expansive interpretation of what constitutes a ”protected activity” in Federal Court BUT the costs and time delays in Federal Court should also be considered.   The technicalities of presenting a case in Federal Court will require the help of an attorney and the time to resolve your your claim will be much longer.

Before jumping into the Federal Court system the SOX Whistleblower should also consider these factors.

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No matter how you you look at it or where you look, the answer is the same. The best way to fight corruption in corporate america is to enable whistleblowers! Protection for whistleblowers is the first step. While SOX may have many pitfalls and hidden traps, it is still an important vehicle for you.

This blog is dedicated to the understanding of SOX and the protection of the whistleblower. Don’t let corrupt managment discredit and retaliate against you.

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In response to a recent post, the question was asked where should a Sox Whistleblower turn for help.  The answer is not that easy. Potential Whistleblowers must be make sure that they protect themselves as well as the shareholders of the publicly traded company at issue.

Other officers of the company and/or its legal counsel or auditors are potential sources of assistance.  Representatives of the SEC may be able to assist you and lawyers that are specialize in the area are potential sources of help.  Other Whistleblowers would also be a good group to consider.   But,

Do not expect that other officers of the company or its “independent” audit committee will be looking out for you.  One would hope that they would and they might, but do not be so naive as to rely on their good faith and devotion to “truth, justice, and the American way”. 

PROTECT YOURSELF.

If you are asked to do something and it doesn’t feel right to you, it probably isn’t. Don’t fall for the rationalization that everyone has been doing it for years. That may be the case but that argument won’t help you that much if you are being set up this time.

Paper your file with hard copies of confirming emails. Do not expect that your soft copies will be readily available to you if you blow the whistle. While the statute mandates the preservation of email communications, my experience is that they are not always voluntarily provided  by the company.  

Be mindful that you may not retain access to your sent emails under your companies data organization structure. To be safe, copy your self on your emails so you can retain a copy and remember to print out hard copies of all important correspondence.

Remember that when it gets right down to it, you may be the only one you can trust in your organization.   

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The Boeing Co. fired at least one employee last month for having a conversation with Seattle reporter in July, the employee said. The company told the employee that he was being investigated and was not allowed to discuss allegations against him with any other Boeing employees.

On July 17, the Seattle publication P-I published an investigative report revealing that Boeing had failed to prove that it could protect its computer systems against manipulation, theft and fraud. The problems were found during the course of audits mandated by the Sarbanes-Oxley Act

Boeing has always maintained that it is compliant with the law and that its financial statements are accurate.

Last month, P-I also received an anonymous e-mail, with a subject line: “Boeing’s hunt for SOX Whistleblowers.”It said: “Computers are being surveilled, audit employees photographed from a distance, their activities video-taped. Multiple suspensions occurring this week. … We’re all under direct threat of firing, lawsuit, and criminal prosecution if we even mention this to each other.” The fired employee worked as an information technology auditor in Boeing’s St. Louis office. He gave the newspaper permission to report on his firing and said Friday that managers began to treat him badly after he raised ethics concerns within the company over how it was conducting its audits.

“Everyone who raises concerns is retaliated against,” the fired employee said. “There’s no way in the world that I expected to lose my job when all I am trying to do is save the company.”

Boeing representative say that the company would focus on fixing problems, not retaliating against employees who raised concerns.

The Whistleblowing employee said he has worked for Boeing for about three years and only recently joined the Sarbanes-Oxley compliance effort. He holds a master’s degree in business administration and has worked in compliance for more than 10 years, he said.

“I don’t know how I’m going to pay my bills; I’m in this all by myself now,” he said. “The last two years out of three I’ve been an ‘exceeds expectations’ employee.”

Immediately following the papers report, some employees said they worried that Boeing would access their personal e-mail accounts.

When asked whether Boeing investigators have read employees’ private e-mails, Boeing representative said, “Our company computing systems are the property of The Boeing Co., and our employees are very aware of their responsibilities in using their systems, and in their use they consent to using those assets properly.”

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Civil Protections for Employees of Issuers Section 806(a) of the Act provides a civil cause of action for employees of public companies who suffer adverse employment action in retaliation for raising concerns about corporate fraud or accounting issues.

The substantive protections created by Section 806(a) provide as follows:

(a) Whistleblower protection for employees of publicly traded companies.

(b) No company with a class of securities registered under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. [’]781), or that is required to file reports under section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. [’]78o(d)), or any officer, employee, contractor, subcontractor, or agent of such company, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of any lawful act done by the employee.—

(1) to provide information, cause information to be provided, or otherwise assist in an investigation regarding any conduct which the employee reasonably believes constitutes a violation of section 1341 [mail fraud], 1343 [wire fraud], 1344 [bank fraud], or 1348 [securities fraud], any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders, when the information or assistance is provided to or the investigation is conducted by—

(A) a Federal regulatory or law enforcement agency;
(B) any Member of Congress or any committee of Congress; or
(C) a person with supervisory authority over the employee (or such other person working for the employer who has the authority to investigate, discover, or terminate misconduct); Or

(2) to file, cause to be filed, testify, participate in, or otherwise assist in a proceeding filed or about to be filed (with any knowledge of the employer) relating to an alleged violation of section 1341, 1343, 1344, or 1348, any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders.

[1] 18 U.S.C. ‘1514A(a) (2004).

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