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Sarbanes-Oxley: Legal protection for employees of publicly traded companies who report financial misconduct, either internally or internally

To protect investors and preserve trust in financial statements made by publicly traded companies, federal law punishes employers who retaliate against employees who complain about financial misconduct. The law is known as the Sarbanes-Oxley Act (SOX). SOX protects more than just formal written complaints by employees to the government. It applies to employees who present oral or written complaints, either internally or externally. If, for example, the employee expresses concern to her supervisors at meetings or via email that their revenue projections rely on inflated calculations that undermine the integrity of the numbers, that is considered protected whistleblowing activity.

There are many kinds of financial misconduct that catch an employee’s eye. Some of the reported cases involve inflated sales forecasts, overstated revenues and assets, questionable accounting practices, falsifying revenue, misleading revenue projections, and revenue recognition schemes where the company reports revenue from a sale, even though there is a side agreement that the customer can return the product later. If a company uses the mail, fax, internet or email to engage in or cover up financial misconduct, SOX applies.

Employers can’t avoid SOX liability by arguing that the employee did not specifically cite mail fraud or wire fraud or securities fraud when she complained. Courts have held that the employee does not have to definitively and specifically describe one or more of these violations. Courts recognize that many employees are untrained about the legal specifics of these kinds of fraud. Therefore, the employee is entitled to protection from retaliation when she can show that she had both a good faith subjective belief and an objectively reasonable belief that fraud exists, or that a violation will occur.

Two court reported SOX decisions that discuss these issues are Stewart v. Doral Fin’l. Corp., 997 F.Supp.2d 129, 135-36 (D.P.R. 2014) and Leshinsky v. Telvent, 942 F.Supp.2d 432, 443 (S.D.N.Y. 2013).

Pamela A. Smith
Law Office of Pamela A. Smith
233 Needham Street, Suite 540
Newton, MA 02464


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