Connecticut District Court Applies Dodd-Frank Retroactively and Sends SOX Whistleblower Case to Trial

In Richard Trusz v. UBS Realty and UBS AG, Case No. 3:09-cv-00268,  Richard Trusz, a high-ranking executive for UBS, complained that the company followed improper procedures in its real estate valuation. These problems, Trusz claimed, resulted in valuation errors totaling as much as $27 million.

Trusz reported his concerns about these valuation procedures both internally and externally prior to the termination of his employment in 2008. According to UBS, it eliminated Trusz’s position because the company decided to outsource its valuation review duties. Trusz alleged three types of whistleblower retaliation claims, one a federal claim under the Sarbanes-Oxley Act and two state law claims.

The parties disagreed about the scope of 18 U.S.C.§ 1514A(a)(1), the anti-retaliation provision in SOX. UBS insisted that Trusz’s complaints, to be protected under SOX, had to be specifically about shareholder fraud and that Trusz must have reasonably believed all elements of fraud were present. Trusz argued that Dodd-Frank is retroactive because it merely clarified the existing meaning of § 1514A. UBS Realty is a registered investment adviser with the Securities and Exchange Commission and also an indirect subsidiary of defendant UBS AG, registered under § 12 of the Securities Exchange Act of 1934.

Judge Meyer held that it is sufficient that Trusz’s allegations could have given rise to liability under the Investment Advisers Act of 1940, 15 U.S.C. § 80b-1 et seq. Because UBS Realty is a registered investment adviser with the Securities Exchange Commission, it is subject to the Investment Advisors Act. Judge Meyer held that because other provisions of Sarbanes-Oxley require parent companies to include information on their subsidiaries in their financial statements, the “company” named in the statutory text could refer to both the parent and subsidiaries. In denying Defendants’ motion for summary judgment, Judge Meyer held that the whistleblowing provisions of Dodd-Frank apply retroactively, and make indirect subsidiaries of publicly traded companies into covered entities subject to the law’s ban on whistleblower retaliation.

Tagged: Sarbanes-Oxley Act (SOX), Whistleblower Laws (Federal)