Introduction
The Sarbanes-Oxley Act is a federal law that governs practices surrounding corporations’ financial records and reporting requirements. In response to several corporate scandals, including those that occurred at Enron and WorldCom, the law was enacted in 2002. These scandals made it clear that if left unsupervised, corporations do not always act in the best interest of their shareholders. Among its many provisions, the Sarbanes-Oxley Act created the Public Company Accounting Oversight Board, established standards for auditor independence, imposed responsibility on senior corporate executives, and required certain enhancements surrounding financial disclosures. Additionally, the law established protections for whistleblowers who come forward with information on companies violating securities laws and regulations.
Whistleblowers and the Sarbanes-Oxley Act
As is usually the case, the government rarely has all the information necessary to prosecute those who violate the law. Fraud in the corporate world is not an exception. In many instances, corporate misconduct only comes to light when whistleblowers come forward with information and evidence of what is happening internally. To encourage corporate whistleblowers to come forward, the Sarbanes-Oxley Act implemented many provisions to protect them. Of relevance, employees of publicly traded companies are protected if they blow the whistle on corporate misconduct. The law mandates that a company cannot fire, suspend, demote, harass, or threaten an employee that comes forward. Specifically, an employee cannot suffer retaliation if they provide information on corporate conduct which they reasonably believe violates the law or any rule of the Securities and Exchange Commission. Of relevance, whistleblowers can give information on behavior that they believe constitutes wire fraud, mail fraud, bank fraud, or securities fraud. Retaliation is also prohibited when employees assist with an investigation. These protections exist when an employee provides information or assists in an investigation carried out by a federal regulator or law enforcement agency, a member or committee of Congress, or a person who supervises the work done by the employee. Employees are also protected if they file or participate in proceedings concerning the alleged violations.
The Sarbanes-Oxley Act protects whistleblowers when they blow the whistle with external parties such as regulatory agencies and when they blow the whistle internally. To these ends, the law requires company audit committees to establish procedures for employees to file complaints internally regarding accounting and auditing matters. In addition, companies must establish policies so that employees can file these complaints confidentially and anonymously. This way, a company employee can file a complaint internally about practices they believe run afoul of applicable federal laws and regulations. Whistleblowers then can file their information with the government if they believe their internal complaint was not acted upon. It should be noted that most whistleblowers can directly go to the government without first filing a complaint internally.
If retaliation does occur, whistleblowers can file a complaint with the Occupational Safety and Health Administration at the U.S. Department of Labor. If 180 days go by and no final decision is taken, a complaint can be filed in federal court. If the employee prevails, the Sarbanes-Oxley Act indicates that they are entitled to all reliefs necessary to make them whole. These reliefs include reinstatement in their position if they were fired or demoted, an award for any back pay owed with interest, and compensation for any additional damages suffered. This last category can include costs of litigation and attorney’s fees.
Lastly, not only are whistleblowers entitled to relief when they suffer retaliation, but the Sarbanes-Oxley Act made it a crime to retaliate against whistleblowers knowingly. It became a crime if anyone retaliates against a whistleblower for providing truthful information to a law enforcement officer regarding the commission or potential commission of a federal offense. Retaliatory actions include interfering with a whistleblower’s lawful employment or livelihood. Doing so can lead to fines or imprisonment for up to 10 years or both.
Conclusion
Public corporations play a significant role in developing the United States economy and creating wealth for shareholders. Unfortunately, public companies can become rife with corruption without effective oversite and auditing, benefiting high-level executives and insiders instead of shareholders. To avoid these practices and the reoccurrence of scandals like the one that occurred at Enron, the Sarbanes-Oxley Act implemented many measures to reestablish confidence in public corporations. Notably, it encourages corporate whistleblowers to come forward by providing comprehensive protections and anti-retaliation provisions. If you have information on corporate misconduct and are interested in blowing the whistle, please contact our firm. We will be able to evaluate your matter and ensure that you receive the protections given to whistleblowers by the law.