USDC SDNYU.S. District Court Judge Leonard B. Sand issued a ruling on Tuesday that allowed a corporate fraud whistleblower, Benjamin Ashmore, to proceed with his case under the Sarbanes-Oxley Act (SOX).

The CGI Group is a Canadian company that lists its stock on the New York Stock Exchange (NYSE: GIB).  It provides technology and management services.  Its US subsidiary, CGI Federal, provides administrative services to public housing authorities (PHAs) to help them manage their "Section 8" programs for low-income tenants.  In 2007, the Department of Housing and Urban Development (HUD) under the Bush Administration announced that it would require a rebid of all Section 8 administrative contracts.  CGI wanted to win a larger share of the market through this rebid.  One kink in this plan was a HUD plan to limit contractors to administration of 300,000 housing units.  CGI already had 267,000 units, so the rule would severely limit CGI’s opportunity for growth.  CGI formed a management team to address this problem.  They called this team the Rebid Assessment Team, or "RAT Pack."

In May, 2009, CGI Federal hired Benjamin Ashmore.  Ashmore had worked for five years as a senior policy analyst for HUD. CGI assigned Ashmore to the RAT Pack. Ashmore quickly learned that the RAT Pack was cooking up a scheme to evade the 300,000 unit cap. Ashmore called the plan the Director Shell Company Scheme. Four CGI directors would officially resign from CGI and set up their own companies that were officially independent of CGI.  CGI would withdraw from some of its partnerships to open a way for these new companies to establish market share. Meanwhile, CGI would make its resources available to the new companies to give them a competitive advantage. After the rebid was over, CGI could acquire these companies and exceed the unit cap. Ashmore opposed the shell game on grounds that it was fraudulent, and that it was bad for future business. HUD eventually dropped the unit cap altogether. In June 2010, CGI removed Ashmore from the RAT Pack.  Two days later, CGI fired Ashmore. Ashmore filed an OSHA complaint under SOX, and later refiled his case in U.S. District Court in New York City.

CGI initially argued that until July 22, 2010, SOX did not cover the employees of subsidiaries. Judge Sand rejected this claim by citing Johnson v. Siemens Bldg. Techs., Inc., ARB No. 08-032, ALJ No. 2005-SOX-015 (ARB Mar. 31, 2011). Johnson was a decision last year by the Department of Labor’s Administrative Review Board (ARB). The National Whistleblowers Center (NWC) and other groups submitted "amicus" briefs to the ARB in support of Carri Johnson in that case. Judge Sand agreed with the ARB that Congress amended SOX to clarify what it had always meant.  As such, SOX always covered the employees of subsidiaries.

CGI also argued that for claims arising before July 22, 2010, the time limit for SOX complaints was 90 days.  Judge Sand said that the 180 day time limit applied because Ashmore filed his complaint after July 22, 2010.

Judge Sand also held that Ashmore did not have to explain how CGI violated the law.  He only needed to show that he had a reasonable basis to believe there was or would be a violation.  Ashmore did that. On page 11, Judge Sand said that, "it is not unreasonable for someone with his background and experience to believe—perhaps correctly—that the use of the telephone lines and email to further a scheme that, as described in the complaint, was explicitly intended to defraud HUD, constituted mail and/or wire fraud under federal law." Judge Sand said that SOX does not require whistleblowers to explain the basis of their beliefs to the employer. Whistleblowers only have to "identify the specific conduct that the employee believes to be illegal." Judge Sand reached this conclusion without reference to the recent ARB decision in Sylvester v. Parexel International LLC, ARB No. 07-123, ALJ No. 2007-SOX-39, 42 (May 25, 2011). Judge Sand also held that Ashmore made sufficient pleadings about how he informed managers of his concerns so that he could show the employer had knowledge of them, and that he could pursue a claim for breach of contract based on non-payment of his bonus which was due after he had worked for CGI for a full year.

Congratulations to New York attorney David Mair on obtaining this fine decision.  Mair is also the attorney representing William Villanueva in a case testing whether SOX can protect whistleblowers working in other countries.