ARB Upholds “Reasonable Belief” Standard for Fraud Claims Under SOX

The Department of Labor’s Administrative Review Board affirmed an Administrative Law Judge’s (ALJ) decision that found the following: Timothy Dietz reported violations of the federal mail and wire fraud statutes to his former employer Cypress Semiconductor Corporation and, in retaliation, Cypress placed an undeserved disciplinary memo in his personnel file, and then constructively discharged him, thereby violating the whistleblower provision of the Sarbanes-Oxley Act (SOX).  The ARB’s decision was issued in Dietz v. Cypress Semiconductor Corp., ARB Case No. 15-017, ALJ Case No. 2014-SOX-002

On April 12, 2013, Dietz sent an email to his direct supervisor and Senior Vice President at Cypress, explaining that a bonus plan violated California and Colorado law.  Dietz explicitly cited Cypress’s whistleblower policy and specific state statutes he believed were being violated. Although Dietz did not specifically mention “fraud” or SOX whistleblower provisions in his email memo, he did testify before the ALJ that he believed the company was engaging in fraud.

In response to the disciplinary memo put in Dietz’s personnel file, Dietz responded with a letter disputing the memo, stating he believed he was being retaliated against for his whistleblower complaint. Even though Dietz stated his intention to resign in this response,  the ALJ found that the letter did not constitute resignation because of a “turnaround process” policy that Cypress used to retain employees who expressed an intent to resign. After Dietz sent his response to the disciplinary memo, Cypress ordered him to appear at a meeting.  At that meeting, because he was concerned that he was about to be fired, Dietz tendered his resignation.

On appeal to the ARB, Cypress’s primary arguments were that (i) because the alleged violations Dietz reported were of state wage laws, not the federal fraud statutes, he is not protected by the SOX whistleblower provision; and (ii) it did not constructively discharge Dietz, and he is thus not entitled to any relief.

Because the record contained substantial evidence to support a finding that Dietz provided information to Cypress that he reasonably believed constituted violations of the federal fraud statutes, and to support a finding that he was constructively discharged, the ARB affirmed the ALJ’s order granting Dietz relief.

The ARB further found that the only reason for the adverse personnel actions was Dietz’s protected activity because of the circumstantial evidence connecting the protective activity and the unfavorable actions. The circumstantial evidence included temporal proximity, inconsistent application of the company’s policies, and inconsistent explanations for the personnel actions. The ARB confirmed that Dietz only had to have a reasonable belief that Cypress was engaging in fraud and that this reasonable belief included a belief that Cypress either misrepresented or concealed facts with its bonus plan.

Tagged: Administrative Review Board (ARB), Enforcement Bodies, Sarbanes-Oxley Act (SOX), Whistleblower Laws (Federal)