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Showing 21 posts in Sarbanes-Oxley Act.

Federal Whistleblower Statutes Aren’t a Cure-All

When Congress passed the Sarbanes-Oxley and Dodd-Frank Acts, it included protections for employees who blow the whistle on wrongdoing by their employers. However, those whistleblower protections don’t apply to every report of wrongdoing. Rather, they come into play only when an employee reports particular types of misconduct.

For example, in a recent decision (Erhart v. BofI Holding, Inc.), a federal court in California dismissed claims by an internal auditor (Erhart) against his employer (BofI Holding), ruling that Erhart didn’t plausibly allege that he had been engaged in the "protected activity" necessary to qualify for the whistleblower protections of those statutes. Read More ›

How Does a Court Decide Whether an Employee's Whistleblowing Caused Termination?

In our last post, we discussed the case of Wiest v. Tyco, in which the Third Circuit held that an employer’s investigation of unrelated wrongdoing by an employee insulated it against the employee’s Sarbanes-Oxley whistleblower retaliation claim. Now, we tackle another piece of the Wiest decision: the court’s holding that Wiest’s protected activity did not contribute to the adverse action against him.

To establish a Sarbanes-Oxley claim, an employee must show that there was a causal connection between his or her whistleblowing and an adverse employment action. If the employee can’t show that link, then he or she can’t prevail. In the Wiest case, the court assumed that Wiest did in fact engage in protected whistleblowing activity. But it held that Wiest didn’t have evidence to show that the whistleblowing caused the employer to take action against him. Read More ›

Investigation Insulates Employer Against Sarbanes-Oxley Retaliation Claim

An employee who has blown the whistle on wrongdoing is not immune from discipline or termination simply because she has engaged in protected activity.

The Third Circuit’s recent decision in Wiest v. Tyco Electronics provides a good example of how an employer can terminate an employee without legal repercussions, even when it is undisputed that the employee was protected against whistleblower retaliation. Read More ›

Sixth Circuit Upholds Financial Planner’s Sarbanes-Oxley Win

Section 1514A of the Sarbanes-Oxley Act shields a whistleblower from retaliation if he reports “conduct [that he] reasonably believes” violates certain laws, including Securities and Exchange Commission regulations.  Last month, the Sixth Circuit held that the question of a whistleblower’s “reasonable belief” is a “simple factual question requiring no subset of findings that the employee had a justifiable belief as to each of the legally-defined elements of the suspected fraud.”  Rhinehimer v. U.S. Bancorp Investments, Inc., No. 13-6641 (6th Cir. May 28, 2015).  Based on this principle, the court affirmed a $250,000 verdict in favor of the plaintiff, Michael Rhinehimer.

According to the Court’s opinion, Rhinehimer was a financial planner for U.S. Bancorp who helped his elderly customer, Norbert Purcell, set up a trust and a brokerage account.  In November 2009, Rhinehimer went on disability leave, and asked a colleague not to conduct any transactions with Purcell.  The colleague didn’t follow the instructions, and instead put Purcell into investments that Rhinehimer believed were unsuitable.  (Unsuitability fraud under the securities laws occurs when a broker knows or reasonably believes certain securities to be unsuitable to a client’s needs, but recommends them anyway.)    Rhinehimer complained about the trades, but his superiors warned him that he should “stay out of the matter” and stop criticizing the colleague.  After Rhinehimer hired a lawyer, he was placed on a performance improvement plan and fired after he failed to meet it. Read More ›

SOX Clawback Provision Takes Another Bite

Section 304 of the Sarbanes-Oxley Act of 2002 requires the CEO and CFO of an issuer that has restated its financial statements to reimburse the company for any incentive or equity-based compensation, and for the profits on any stock sales of the company’s stock, during the 12-month period following the first issuance of the offending financial statements.   Although this provision has been used sparingly by the SEC, the recent settlement of SEC investigatory charges by Saba Software, in which executives who were not charged with any wrongdoing agreed to repay bonuses and stock profits, is a cautionary tale for CEOs and CFOs of publicly traded companies.  

Saba Software became the subject of an SEC investigation and enforcement action arising out of an alleged scheme to overstate revenues by overbooking and pre-booking time statements of international consultants in order to meet pre-arranged time estimates.  As part of the settlement of the SEC charges in the fall of 2014, Saba was required to restate its financial records for the years 2009 through part of 2012.  In a contemporaneous settlement, Saba’s CEO agreed to reimburse the company for over $2.5 million in incentive and equity compensation and profits from stock sales earned following the issuance of the financial statements the company restated.  http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370543035992#.VOtSdC6LXfc. Read More ›

Fourth Circuit Upholds Jury’s Sarbanes-Oxley Award of Emotional Distress Damages to Fired CFO

The Sarbanes-Oxley Act’s whistleblower protection provision, 18 U.S.C. § 1514A, allows a wrongfully terminated whistleblower to recover “all relief necessary to make [her] whole.”  18 U.S.C. § 1514A(c)(1).  The statute then goes on to say that compensatory damages include reinstatement, back pay, and “special damages,” including expert fees and reasonable attorneys fees.  In an opinion issued this week, the Fourth Circuit held that Sarbanes-Oxley damages don’t just include these enumerated damages.  Rather, an employee can obtain other compensation for harm, including emotional distress damages.  Jones v. SouthPeak Interactive Corp. of Delaware, Nos. 13-2399, 14-1765 (4th Cir. Jan. 26, 2015).

The plaintiff in the case, Andrea Gail Jones, was the former chief financial officer of SouthPeak, a video game manufacturer.  According to the opinion, in 2009, SouthPeak wanted to buy copies of a video game for distribution, but didn’t have the cash to buy the games up front.  Instead, SouthPeak’s chairman, Terry Phillips, personally fronted Nintendo over $300,000.  When SouthPeak didn’t record this debt, Jones raised a stink, eventually telling the company’s outside counsel that the company was committing fraud.  The same day, the company’s board fired her.  Read More ›

Suits by Suits’ Greatest Hits of 2014

Who doesn’t love the year-end countdown?  We’re here to offer you one of our own – our most-read posts in 2014 about executive disputes.  The posts run the gamut from A (Alex Rodriguez) to Z, or at least to W (Walgreen).  They cover subjects from sanctified (Buddhists and the Bible) to sultry (pornographic materials found in an executive’s email).  Later this week, we’ll bring you a look at what to expect in 2015.

Without further ado, let the countdown begin!

8.            The Basics: Dodd-Frank v. Sarbanes-Oxley

This post is an oldie but a goodie.  It includes a handy PDF chart that breaks down the differences in the Dodd-Frank and Sarbanes-Oxley whistleblower laws.  Each of these laws continues to be a hot-button issue for plaintiffs and employers.

7.            When Employment Relationships Break Bad

America may have bidden adieu to Walter White and his pals on Breaking Bad, but employment relationships continue to spin off in some very unpleasant ways.  Such was the case with Stephen Marty Ward, who ended up in federal prison after he threatened his employer with disclosure of its trade secrets, as we covered in this post. Read More ›

A Look at the Concurring and Dissenting Opinions in the Supreme Court's Sarbanes-Oxley Whistleblower Decision

In yesterday's post, we covered the background of Tuesday's Supreme Court decision in Lawson v. FMR, LLC, and took an in-depth look at Justice Ginsburg's majority opinion.  Today, we look at what the other Justices had to say.

Justice Scalia, joined by Justice Thomas, signed on to Justice Ginsburg's opinion in principal part, but also authored his own opinion.  Justice Scalia and Justice Thomas subscribe to the position that a judge, in reading and interpreting a statute, should not examine what Congress said in places other than the statutory language, such as in committee reports and floor speeches.  Based on that judicial philosophy, Justice Scalia criticized Justice Ginsburg for her “occasional excursions beyond the interpretative terra firma of text and context, into the swamps of legislative history.”  Read More ›

Supreme Court Allows Employees of Private Contractors to Bring Sarbanes-Oxley Whistleblower Retaliation Claims

On Tuesday, the Supreme Court issued an opinion that may have sweeping implications for whistleblowers and employers.  In Lawson v. FMR LLC, the Court decided that the anti-retaliation provision of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1514A) allows an employee to bring a claim even if that employee works for a private contractor or subcontractor of a public company.  The Court’s decision could lead to a wide range of Sarbanes-Oxley lawsuits by outside counsel, private accountants, cleaning services, and others.

Lawson was a split decision.  Justice Ginsburg, joined by Chief Justice Roberts, Justice Breyer, and Justice Kagan, and by Justices Scalia and Thomas “in principal part,” wrote for the majority.  Justice Scalia wrote a separate concurrence, joined by Justice Thomas.  And in an unusual grouping, Justice Sotomayor authored the dissent, joined by Chief Justice Roberts and Justice Alito.  Today, we'll tackle Justice Ginsburg's opinion; tomorrow, we'll take a look at what Justices Scalia and Sotomayor had to say.

But first, a little background. Read More ›

Twice as Nice for Employers: Federal Courts of Appeals Affirm Sarbanes-Oxley, ‎Kansas Whistleblower Dismissals

For those of us who follow whistleblower law, Wednesday was a big day – and a good one for employers.  In two separate federal appellate decisions, courts affirmed the dismissal of whistleblower actions based on very different issues.  For potential whistleblowers and employers alike, the decisions demonstrate yet again the importance of the particular requirements and scope of the law that a whistleblower relies on to support his claim.

The first decision, Villanueva v. Department of Labor, No. 12-60122 (5th Cir. Feb. 12, 2014), comes to us from the Fifth Circuit. It involves William Villanueva, a Colombian national who worked for a Colombian affiliate of Core Labs, a Netherlands company whose stock is publicly traded in the U.S.  Villanueva claimed that he blew the whistle on a transfer-pricing scheme by his employer to reduce its Colombian tax burden, and that his employer passed him over for a pay raise and fired him in retaliation for his whistleblowing. Read More ›