Tag Archives: SOX

SEC Continues Aggressive Oversight of Separation and Confidentiality Agreements

Last August, we reported on two significant cease-and-desist orders issued by the SEC that, for the first time, found certain language in the confidentiality and release provisions of separation agreements to violate the SEC’s Rule 21F-17(a), which precludes anyone from impeding any individual (i.e., a whistleblower) from communicating directly with the agency.[1] Since then, the SEC has continued its aggressive oversight of separation and confidentiality agreements, with substantial repercussions for some employers. These orders, a select number of which we summarize here, have companies engaging in a serious review and rethinking of their confidentiality restrictions and other relevant provisions in their agreements and handbooks, and considering whether and what remedial steps to take proactively to cure any issues with the language in these key documents.

Read full article

The Enforceability of Predispute Arbitration Agreements With Respect to Dodd-Frank and SOX Whistleblower Retaliation Claims Continues to be a Puzzle

By John F. Fullerton III and Jason Kaufman

Almost four years after it was enacted in 2010, the full impact of the Dodd Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) on the enforceability of predispute arbitration agreements is not completely clear.  Some whistleblower retaliation claims are still subject to mandatory arbitration agreements, while others plainly are not, depending upon when the arbitration agreement was executed, the statute under which the claim is brought, and the jurisdiction in which the employer and employee find themselves.

First, prior to the passage of Dodd-Frank, courts had held that whistleblower retaliation claims filed under Section 806 of the Sarbanes-Oxley Act (“SOX”) could be compelled to arbitrate under mandatory arbitration agreements between an employer and employee.  Dodd-Frank amended Section 806 to include an explicit ban on agreements to arbitrate SOX claims: “No predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this section.”  There is a split in authority, however, regarding whether this provision applies retroactively to invalidate arbitration agreements executed before Dodd-Frank was enacted.  Federal courts in Massachusetts and New York [pdf] have reasoned that retroactive application is appropriate because congressional intent as to the temporal scope of the statute is unclear, and because the right to arbitrate is jurisdictional – i.e., relates only to the forum in which claims can be heard – rather than substantive.  Courts in New Jersey (most recently) [pdf], Nevada, Colorado, South Carolina, and the District of Columbia, on the other hand, have rejected this rationale based on the well-settled presumption against statutory retroactivity, and their determination that the right to arbitrate is not merely a question of jurisdiction, but a vested contractual right that cannot be withdrawn retroactively absent clear congressional intent.  Thus, in the latter jurisdictions, some SOX claims remain arbitrable if the arbitration agreement pre-dates Dodd-Frank.

Read full article

Second Circuit Confirms Burden of Proof in SOX Whistleblower Retaliation Cases

By:  John F. Fullerton III

On March 5, 2013, the U.S. Second Circuit Court of Appeals clarified the burden-shifting framework applicable to whistleblower retaliation claims under Section 806 of the Sarbanes-Oxley Act, 18 U.S.C. § 1514A.  In Bechtel v. Administrative Review Board et al., (pdf), the Court issued a decision, consistent with prior decisions of several other Circuits, that affirmed the burden of proof standard applied by the Administrative Review Board (ARB) in its decision, which affirmed an administrative law judge’s (ALJ) decision that had dismissed the employee’s retaliation claim, but applied an erroneous standard in so doing.

Read full article

Sarbanes-Oxley Whistleblower Coverage Expanded by Department of Labor to Private Firms Serving Publicly Traded Companies – Accountants, Lawyers, Consultants, and Advisors, Beware!

by Frank C. Morris, Jr., and Allen B. Roberts

The U.S. Department of Labor (“DOL”) Administrative Review Board (“ARB”) has sounded an alarm that needs to be heard by accounting firms, law firms, and other consultants, advisors, and providers of services to publicly traded companies.  With its recent decision in Spinner v. David Landau & Associates, LLC, ARB Case Nos. 10-111, 10-115 (May 31, 2012), the ARB continued its expansion of whistleblower protection, holding that Sarbanes-Oxley (“SOX”) whistleblower protections extend to employees of privately held businesses that merely contract with publicly traded companies.  The ARB’s decision significantly expands the number and type of organizations whose employees it says are covered by SOX whistleblower protections.  But the result was accomplished by direct rejection of the opposite conclusion reached by the U.S. Court of Appeals for the First Circuit in its well-reasoned recent decision in Lawson v. FMR LLC, 670 F.3d 61 (1st Cir. 2012).  While this is not the first instance of contrasting administrative and judicial interpretations of the definition and reach of SOX protections, it clearly indicates the current climate in which a wide swath of employers need to reassess their compliance programs, provisions for receipt of whistleblower reports, and procedures for addressing claims and avoiding retaliation.

Read the full advisory online

Read full article

Sarbanes-Oxley Whistleblower Coverage Expanded by Department of Labor to Private Firms Serving Publicly Traded Companies – Accountants, Lawyers, Consultants, and Advisors, Beware!

by Frank C. Morris, Jr., and Allen B. Roberts

The U.S. Department of Labor (“DOL”) Administrative Review Board (“ARB”) has sounded an alarm that needs to be heard by accounting firms, law firms, and other consultants, advisors, and providers of services to publicly traded companies.  With its recent decision in Spinner v. David Landau & Associates, LLC, ARB Case Nos. 10-111, 10-115 (May 31, 2012), the ARB continued its expansion of whistleblower protection, holding that Sarbanes-Oxley (“SOX”) whistleblower protections extend to employees of privately held businesses that merely contract with publicly traded companies.  The ARB’s decision significantly expands the number and type of organizations whose employees it says are covered by SOX whistleblower protections.  But the result was accomplished by direct rejection of the opposite conclusion reached by the U.S. Court of Appeals for the First Circuit in its well-reasoned recent decision in Lawson v. FMR LLC, 670 F.3d 61 (1st Cir. 2012).  While this is not the first instance of contrasting administrative and judicial interpretations of the definition and reach of SOX protections, it clearly indicates the current climate in which a wide swath of employers need to reassess their compliance programs, provisions for receipt of whistleblower reports, and procedures for addressing claims and avoiding retaliation.

Read full article

New FINRA Rule Confirms That Whistleblower Claims Need Not Be Arbitrated

Before the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd Frank”) was enacted, whistleblower claims by registered representatives, including those arising pursuant to the Sarbanes-Oxley Act of 2002 (“SOX”) were subject to mandatory arbitration at FINRA.  See FINRA Regulatory Notice 12-21 (PDF).  Dodd Frank changed that.  Dodd Frank specifically amended SOX to provide that “[n]o dispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this section.”  In addition, SOX was also amended to provide that rights and remedies provided for in the statute cannot be waived, including by having a predispute arbitration agreement.  In order to be consistent with SOX and to make it clear that FINRA will not require the arbitration of other similar statutory claims, as of May 21, 2012, FINRA amended Rule 13201 of the Code of Arbitration Procedure for Industry Disputes (the “FINRA Code”) to address the arbitrability of statutory whistleblower claims.

Read full article

Expansion of Protected Activity Under Sarbanes-Oxley Continues

By:  Allen B. Roberts and Frank C. Morris, Jr.

Continuing its trend from 2011, the Department of Labor (DOL) Administrative Review Board (ARB) seems intent on extending whistleblower protection under the Sarbanes-Oxley Act of 2002 (SOX) beyond allegations of securities fraud – even where that means reversal of its own administrative law judges who believe they are applying the law as Congress intended and consistent with ARB precedent. For now, whistleblowers and their attorneys can expect a more hospitable reception in this administrative forum for innovative claims alleging that adverse employment actions have occurred in reprisal for activity claimed to be covered by SOX Section 806. 

 

The ARB’s March 28, 2012 decision in Zinn v. American Commercial Lines Inc. (pdf) builds from the groundbreaking May 2011 holding in Sylvester v. Paraxel, Int’l LLC that “a reasonable belief about a violation of any rule or regulation of the Securities and Exchange Commission could encompass a situation in which the violation, if committed, is completely devoid of any type of fraud,” and a whistleblower need not prove fraud to win a retaliation claim. Zinn, at 8. Further, even if the whistleblower’s belief is mistaken, and no actual violation of the law has occurred, whistleblower protections are available and will be enforced.  Id. at 10.

Read full article

SOX Recap

Allen B. Roberts and Stuart Gerson are co-authors of the recent Law360 article Examining The Purpose Of Sarbanes-Oxley. This summary of recent Administrative Review Board actions explains the shift in the standards whistleblowers must meet, and how employers should prepare for this new era of litigation.

Read full article

Sarbanes-Oxley "Protected Activity" Wins a Broad Interpretation – But Is the Decision Faithful to Congressional Intent?

By: Allen B. Roberts, Stuart M. Gerson and Daniel J. Schuch

In a case packed with allegations of the kind rarely found beyond the script of a soap opera, the U.S. Department of Labor (“DOL”) Administrative Review Board (“ARB”) determined that protected activity under the Sarbanes-Oxley Act of 2002 (“SOX”) does not require a showing of fraud against shareholders. Rather, per the ARB, it is sufficient that an employee reasonably believes conventional mail or wire fraud has occurred. The holding in Brown v. Lockheed Martin Corp. (pdf) evidences the ARB’s adherence to a literal, and clinical, construction of SOX – and serves as a clear indication of the ARB’s willingness to reach beyond the underlying objectives envisioned by Congress in the wake of the infamous collapse of Enron and WorldCom. If upheld and followed, Brown effectively expands SOX whistleblower protections well beyond the intended beneficiary of the law – the “innocent investor.”

Read full article

Sarbanes-Oxley Whistleblower Complaint Dismissed for Failure to Enumerate Basis of Statutory Protection

An in-house patent attorney who protested that his employer knowingly assigned a $50 million value to acquire patents alleged to be worthless could not link his discharge to whistleblower activity protected by the Sarbanes-Oxley Act. Affirming dismissal in Vodopia v. Koninklijke Philips Electronics, N.V., et al., the Second Circuit Court of Appeals observed that: (1) the complaint clearly centered on the plaintiff’s concern that the patents were invalid, not on the value the company assigned to them; and (2) the complaint did not allege that the $50 million value assigned to those patents was ever reported to the public or to shareholders.

Read full article