Individual Liability for SOX Whistleblower Retaliation
April 9, 2008 | Leave a Comment
Individual Liability for SOX Whistleblower Retaliation. The Sarbanes-Oxley Act of 2002 specifically applies to all officers, employees, contractors, subcontractors, or agents of a covered company. At least one Adminitrative Law Judge has ruled that individuals may be properly named as respondents in SOX whistleblower protection claims under Section 806 of the Act. Granada Entertainment, 2004-SOX-74 (ALJ Oct. 19, 2004).
Criminal Exposure of Sarbanes-Oxley
April 4, 2008 | Leave a Comment
Section 1107 of SOX imposes several criminal penalties. The penalties include a fine and/or imprisonment for up to 10 years. Section 1107 does NOT create a private cause of action. See In Re Compact Disc Minimum Advertised Antitrust Litigation, MDL No. 1361 (D.Me.Oct. 2, 2006).
Section 1107 provides that:
“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.”
This section of SOX is not limited to publicly traded employers. It appears to apply broadly to both individuals and corporations. The Section prohibits retaliation against persons who provide to a law enforcement officer “any truthful information” relating to the commission or possible commission of “any Federal offense.” Thus the information is not limited to matters involving corporate fraud or accounting abuses but can involve “any Federal crime“.
Section 1107 could create “land mines” for employers. For example, a report to a law enforcement official that a co-worker or supervisor engaged in any of the following activities would appear to be protected under this Section: (1) willfully creating dangerous working conditions in violation of OSHA laws; (2) violating one of the multitude of environmental laws; (3) copying or using software with out permission; (4) storing and/or transmitting indecent material via a company computer; or (5) the destruction of documents in response to notice of a governmental investigation.
Another concern for employers should be the risk of defending both a civil proceeding and a criminal proceeding under the Act, with a potential early communication to OSHA being the employer’s first required statement on the matter. The substantial resources required to defend against both proceedings simultaneously could result be a drain on the employer’s assets.
The final concern resulting from Section 1107 is the location of its codification at 18 U.S.C. § 1513(e). This section is specifically listed within the definition “racketeering activity” under the Racketeer Influenced and Corrupt Organizations Act (“RICO”). The result of this is that Section 1107 will likely be a basis for asserting civil RICO claims in a whistleblower case.
AN EMPLOYEE’S ASSISTANCE IN RESPONDING TO A SUBPOENA BY A GRAND JURY WAS POTENTIALLY “ASSISTING” A PROCEEDING AND THEREFORE POTENTIALLY A PROTECTED ACTIVITY
April 2, 2008 | Leave a Comment
In Miles v. Wal-Mart Stores, Inc.,No. 5:06-CV-05162 (W.D.Ark. Jan. 25, 2008), the court found that the Plaintiff had created a geniune issue of material fact as to whether she engaged in protected activity under SOX because she had provided assistance to the FBI and an Assistant U.S. Attorney in connection with Wal-Mart’s response to a grand jury subpoena calling for production of documents concerning union-related labor relations and the investigation of a former executive for suspected fraud. The Plaintiff had objected to an instruction to shred certain documents being digitized in her labor relations department which she believed might have been subject to the subpoena. Wal-Mart argued that the Plaintiff had only aided an “investigation” as opposed to a “proceeding.” The court found that under the circumstances, a genuine issue of material fact existed as to whether the Plaintiff engaged in protected activity.
The section of the Sarbane-Oxley Act that potentially applied was the second prong of the protected activity provision of Sarbanes-Oxley which prohibits publicy traded companies from discrimination against an employr or other covered person that: files, causes to be filed, testifies, participates in, or otherwise assists 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. 18 U.S.C. 1514A(a) (2004).