Department of Labor Issues Landmark Decision in Favor of Sarbanes-Oxley Whistleblowers

On February 27, 2009, the United States Department of Labor’s Administrative Review Board (“ARB”) affirmed the Administrative Law Judge’s (“ALJ”) opinion in Kalkunte v. DVI Financial Services, Inc., where the ALJ held that a privately-held company acting as a contractor, subcontractor, or agent of a publicly traded company can be held liable for violation of the whistleblower provisions of the Sarbanes-Oxley Act (“SOX”).  SOX, also known as the Corporate and Criminal Fraud Accountability Act of 2002, was enacted to ensure that employees who report corporate fraud can do so without fear of employer retaliation. The Kalkunte decision is significant because it defines the scope of liability under SOX and because it is the first time that the ARB has affirmed an ALJ decision in favor of a SOX plaintiff.

In Kalkunte the complainant Sheila Kalkunte, a former Associate General Counsel of DVI Financial Services, Inc. (“DVI”), alleged that she was retaliated against for disclosing information to audit committee members and outside counsel about senior management’s alleged misrepresentation of statistical data in violation of securities laws.  In addition, Kalkunte alleged that DVI, a publicly traded company and AP Services, LLC (“AP”), a privately-held company were both liable for retaliation under Section 806 of SOX.  In its defense, AP argued that privately-held companies are not required to adhere to SOX.

In affirming the ALJ’s decision, the ARB held that a company cannot escape liability for violating the whistleblower provisions of SOX merely because it is not registered under the Securities and Exchange Act or required to file reports under the same act. 

The ARB awarded Kalkunte lost wages and compensatory damages based on its finding that there was substantial evidence supporting the ALJ’s ruling that both DVI and AP retaliated against Kalkunte because of her whisleblowing activity.

R. Scott Oswald and Nicholas Woodfield, Principals at The Employment Law Group® law firm (www.employmentlawgroup.com), represented Ms. Kalkunte and can be reached at 202-331-2883.

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