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First Sarbanes-Oxley Whistleblower Decision
In the first ruling applying the whistleblower protections of the Sarbanes-Oxley Act of 2002, 18 U.S.C. ' 1514A, an Administrative Law Judge (ALJ) ordered a bank holding company to rehire its former Chief Financial Officer (CFO), after finding that the company fired the CFO in retaliation for reporting alleged accounting misconduct to the company's Chief Executive Officer (CEO), outside auditors, and others. Welch v. Cardinal Bankshares Corp., No. 2003-SOX-15 (Dep't Labor, Jan. 28, 2004) (hereinafter “Op.”) The sole reason given by the company for the firing was the CFO's refusal to attend an internal investigation interview regarding the allegations without his personal attorney, which the company alleged constituted a failure to cooperate with the company's internal investigation instigated in response to the CFO's allegations of wrongdoing. The ALJ found the company's stated reason for the firing was mere pretext and that the CFO, David Welch, was, in fact, fired in retaliation for reporting the potential accounting misconduct he had discovered.
Significance of This First Decision
The opinion has received significant legal coverage because it is the first decision under the Sarbanes-Oxley whistleblower protections. The interest in the opinion is understandable, given that the provisions are untested and, on their surface, are more expansive than other such protections. They are somewhat easier to trigger than whistleblower protections under other federal and state laws – requiring only that an employee of a publicly traded company provide information to his or her employer or to the Federal Government which the employee reasonably believes constitutes fraud or violations of the securities laws, regardless of whether a lawsuit or enforcement action by the government or private litigants is filed or threatened. 18 U.S.C. ' 1514A. In contrast, the whistleblower protections of the False Claims Act protect only those employees who act in furtherance of an action filed or to be filed. 31 U.S.C. ' 3730(h). While there are variations among other whistleblower statutes, for the most part their protections are not as easily triggered as are the protections under Sarbanes-Oxley. See generally, Baynes LM: Symposium: Enron and Its Aftermath: Just Pucker and Blow?: An Analysis of Corporate Whistleblowers, The Duty of Care, The Duty of Loyalty, and The Sarbanes-Oxley Act, 76 St. John's L. Rev. 875, 888-890 (2002).
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