Federal Judge Interprets SOX to Protect Whistleblowers Who Report Fraud Committed by Clients and Business Partners

Judge Robert Sweet of the United States District Court for the Southern District of New York stated in the case of Sharkey v. J.P. Morgan Chase that the Sarbanes-Oxley Act (SOX) protects whistleblowers who report fraudulent activity by their employer or by third parties such as clients and business partners:

The legislative history concerning the sox whistleblower provision indicated that Sarbanes-Oxley was enacted to counteract a corporate culture that “discourages employees from reporting fraudulent behavior not only to the proper authorities such as the FBI and the SEC, but even internally. This ‘corporate code of silence’ not only hampers investigations, but also creates a climate where ongoing wrongdoing can occur with virtual impunity. The consequences of this corporate code of silence for investors in publicly traded companies, in particular, and for the stock market, in general, are serious and adverse, and they must be remedied.” S. Rep. No. 107 146, at *5.

SOX precludes an employer from retaliating against any employee who provides information or otherwise assists in an investigation regarding conduct which the employee reasonably believes constitutes a violation of “section 1341 [Frauds and Swindles], 1343 [Fraud by Wire, Radio or Television], 1344 [Bank Fraud], or 1348 [Securities and Commodities Fraud], any rule or regulation of the [SEC], or any provision of Federal law relating to fraud against shareholders.” 18 U.S.C. 1514A(a) (1) . The statute by its terms does not require that the fraudulent conduct or violation of federal securities law be committed directly by the employer that takes the retaliatory action.

Under the Judge’s interpretation of SOX, companies are prohibited from either requiring employees to ignore the illegal activity of clients and business partners or punishing those employees with the integrity to report illegal activity.  For more information about the Sarbanes-Oxley Act or reporting illegal activity, click here.

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