Whistleblower Retaliation under Sarbanes-Oxley: It's a Crime!

Breaking New Ground

Catch your breath and consider the sweep of this criminal statute that, incidentally, also constitutes a predicate act for criminal and civil RICO. 18 U.S.C. ' 1961(1). On its face, it applies to: 1) any harmful action; 2) targeting any person; 3) who provides any quantum of truthful information to law enforcement; 4) about the possible commission; 5) of any federal crime. Physical harm to a witness or an informant has long been the subject of a criminal retaliation statute. 18 U.S.C. ' 1513. Yet short of physical harm, retaliation and employment issues usually have been the subjects of civil, not criminal, remedies.

Moreover, anti-retaliation statutes usually have been confined to particular types of suspect activity (like civil rights violations under Title VII), particular sectors of the economy (like mine safety under 30 U.S.C. ' 815(c)) or government employees (5 U.S.C. ' 2302(b)(8)). By contrast, the Act provision covers anybody in any sector of the economy, public or private.

Retaliation Can Mean Real Jail Time

In a predictable response to the Act's call for 'review' of the Sentencing Guidelines for white-collar and obstruction offenses, the Sentencing Commission implemented emergency amendments, effective on January 25, 2003, and made permanent 3 months later. The base offense level for obstruction/retaliation offenses has been increased from 12 to 14. U.S.S.G. ' 2J1.2. This is significant. Even with a three-level downward adjustment to level 11 for 'super' acceptance of responsibility, the defendant will still be in Zone C. In Zone C, probation is not authorized. If a split sentence is imposed, at least one half of the minimum term must be satisfied by imprisonment. U.S.S.G. ' 5C1.1(d). Moreover, by memorandum to the Bureau of Prisons dated December 16, 2002, the Deputy Attorney General directed BOP that 'imprisonment' may not include designation to a community corrections center (halfway house). Compare United States v. Kramer, 2003 U.S. Dist. LEXIS 7212 (N.D.Ill. April 30, 2003) with Culter v. United States, 214 F.Supp. 2d 19 (D.D.C. 2003).

Uncertainties with the Statute

A few things are defined in this criminal statute, but much is left to case-by-case development.

The statute targets any person ('whoever') who participates in retaliatory action. Substantively or under a conspiracy theory, this could include direct supervisors, HR personnel, upper management, officers or directors who sign off on or acquiesce in the personnel action, compliance officers, and even in house counsel. The definition of 'law enforcement officer' includes not only federal agents, but federal prosecutors, probation officers and pre-trial services officers as well as local agents and prosecutors working for the feds on joint task forces. 18 U.S.C. ' 1515(a)(4).

The measure of 'truthful information,' however, is unclear. The government no doubt will contend that it depends on the whistleblower's reasonable or good-faith belief in the truthfulness of the information as opposed to a more objective standard. However, the criminal statute is silent on this point, while the Act's civil anti-retaliation statute, discussed below, expressly requires the whistleblower's 'reasonable' belief that the conduct to be reported is unlawful.

The Civil Retaliation Statute

Paradoxically, the Act's civil whistleblower remedy is tailored more narrowly than the criminal retaliation provision. 18 U.S.C. ' 1514A. This civil statute provides employment-related protections only for persons employed by or otherwise working for publicly traded companies. It protects those who provide information or assistance in an investigation of conduct which the person 'reasonably,' even if incorrectly, believes to violate the mail, wire, bank or securities fraud laws, SEC regulations and rules, or any federal law relating to fraud against shareholders.

Misconduct

Prevailing employees are entitled to 'all relief necessary to make the employee whole,' including reinstatement, back pay, special damages and attorneys' fees. There is no provision for punitive damages. Employers may recover only up to $1000 in attorneys' fees, if the claim is found to be frivolous or brought in bad faith.

Conclusion

Both employers and individual wrongdoers may be held liable for retaliatory conduct under the Act. Therefore, it is critical that employers get up to speed on these provisions. The far sweep of the Act's criminal whistleblower provision is troublesome. The possibility for employee mischief is great, as the whistleblower law may apply to information about any possible federal crime, including relatively minor or routine ones like drug possession or immigration fraud.

Ronald H. Levine is a partner at the Philadelphia-based law firm of Post & Schell, P.C., heading its White Collar Defense, Compliance and Risk Management Group. He was previously chief of the Criminal Division of the U.S. Attorney's Office for the Eastern District of Pennsylvania. Michelle L. Ostrelich is an associate with the firm.

The Congressional response to the scandals of Enron and its corporate cousins was not exactly laser-guided. Much ado already has been made about many provisions of the Sarbanes-Oxley Act (the Act), but one that has drawn little comment is its unprecedented, sweeping and criminal whistleblower law. The new criminal statute reaches far beyond the abuses that spawned the Act ' securities and accounting frauds of publicly traded companies. It provides:

'Whoever knowingly, with the intent to retaliate, takes any action harmful to any person, including interference with the lawful employment or livelihood of any person, for providing to a law enforcement officer any truthful information relating to the commission or possible commission of any Federal offense, shall be fined under this title [$250,000] or imprisoned for not more than 10 years, or both.' 18 U.S.C. ' 1513(e) [emphasis added]; see 18 U.S.C. ” 3571(b)(3), (c)(3) ($500,000 fine for a corporation).

The Ex Post Facto Clause restricts application of this provision to criminal conduct occurring on or after the date of enactment, July 30, 2002. However, a straddle conspiracy may be chargeable under the continuing offense doctrine. See United States v. Monaco , 194 F.3d 381, 386 (2d Cir. 2000).

Breaking New Ground

Catch your breath and consider the sweep of this criminal statute that, incidentally, also constitutes a predicate act for criminal and civil RICO. 18 U.S.C. ' 1961(1). On its face, it applies to: 1) any harmful action; 2) targeting any person; 3) who provides any quantum of truthful information to law enforcement; 4) about the possible commission; 5) of any federal crime. Physical harm to a witness or an informant has long been the subject of a criminal retaliation statute. 18 U.S.C. ' 1513. Yet short of physical harm, retaliation and employment issues usually have been the subjects of civil, not criminal, remedies.

Moreover, anti-retaliation statutes usually have been confined to particular types of suspect activity (like civil rights violations under Title VII), particular sectors of the economy (like mine safety under 30 U.S.C. ' 815(c)) or government employees (5 U.S.C. ' 2302(b)(8)). By contrast, the Act provision covers anybody in any sector of the economy, public or private.

Retaliation Can Mean Real Jail Time

In a predictable response to the Act's call for 'review' of the Sentencing Guidelines for white-collar and obstruction offenses, the Sentencing Commission implemented emergency amendments, effective on January 25, 2003, and made permanent 3 months later. The base offense level for obstruction/retaliation offenses has been increased from 12 to 14. U.S.S.G. ' 2J1.2. This is significant. Even with a three-level downward adjustment to level 11 for 'super' acceptance of responsibility, the defendant will still be in Zone C. In Zone C, probation is not authorized. If a split sentence is imposed, at least one half of the minimum term must be satisfied by imprisonment. U.S.S.G. ' 5C1.1(d). Moreover, by memorandum to the Bureau of Prisons dated December 16, 2002, the Deputy Attorney General directed BOP that 'imprisonment' may not include designation to a community corrections center (halfway house). Compare United States v. Kramer, 2003 U.S. Dist. LEXIS 7212 (N.D.Ill. April 30, 2003) with Culter v. United States , 214 F.Supp. 2d 19 (D.D.C. 2003).

Uncertainties with the Statute

A few things are defined in this criminal statute, but much is left to case-by-case development.

The statute targets any person ('whoever') who participates in retaliatory action. Substantively or under a conspiracy theory, this could include direct supervisors, HR personnel, upper management, officers or directors who sign off on or acquiesce in the personnel action, compliance officers, and even in house counsel. The definition of 'law enforcement officer' includes not only federal agents, but federal prosecutors, probation officers and pre-trial services officers as well as local agents and prosecutors working for the feds on joint task forces. 18 U.S.C. ' 1515(a)(4).

The measure of 'truthful information,' however, is unclear. The government no doubt will contend that it depends on the whistleblower's reasonable or good-faith belief in the truthfulness of the information as opposed to a more objective standard. However, the criminal statute is silent on this point, while the Act's civil anti-retaliation statute, discussed below, expressly requires the whistleblower's 'reasonable' belief that the conduct to be reported is unlawful.

The Civil Retaliation Statute

Paradoxically, the Act's civil whistleblower remedy is tailored more narrowly than the criminal retaliation provision. 18 U.S.C. ' 1514A. This civil statute provides employment-related protections only for persons employed by or otherwise working for publicly traded companies. It protects those who provide information or assistance in an investigation of conduct which the person 'reasonably,' even if incorrectly, believes to violate the mail, wire, bank or securities fraud laws, SEC regulations and rules, or any federal law relating to fraud against shareholders.

Misconduct

Prevailing employees are entitled to 'all relief necessary to make the employee whole,' including reinstatement, back pay, special damages and attorneys' fees. There is no provision for punitive damages. Employers may recover only up to $1000 in attorneys' fees, if the claim is found to be frivolous or brought in bad faith.

Conclusion

Both employers and individual wrongdoers may be held liable for retaliatory conduct under the Act. Therefore, it is critical that employers get up to speed on these provisions. The far sweep of the Act's criminal whistleblower provision is troublesome. The possibility for employee mischief is great, as the whistleblower law may apply to information about any possible federal crime, including relatively minor or routine ones like drug possession or immigration fraud.

Ronald H. Levine is a partner at the Philadelphia-based law firm of Post & Schell, P.C., heading its White Collar Defense, Compliance and Risk Management Group. He was previously chief of the Criminal Division of the U.S. Attorney's Office for the Eastern District of Pennsylvania. Michelle L. Ostrelich is an associate with the firm.