Whistleblower Protection Blog : Whistleblower Lawyer & Attorney : National Whistleblower Legal Defense and Education Fund : Whistleblower Protection, Fraud Claims : Washington DC

Federal law makes it a crime to:

knowingly, with the intent to retaliate, take[] any action harmful to any person, including interference with the lawful employment or livelihood of any person, for providing to a law enforcement officer any truthful information relating to the commission or possible commission of any Federal offense . . ..  18 U.S.C. § 1513(e).

This law was strengthened as part of the 2002 Sarbanes-Oxley Act (SOX) that seeks to prevent corporate fraud and protect whistleblowers. My colleague, Stephen M. Kohn, Executive Director of the National Whistleblowers Center, wrote about this section as follows:

PROHIBITION AGAINST EMPLOYEE DISCRIMINATION (CRIMINAL)

Section 1107 of H.R. 3763, codified as 18 U.S.C. 1513(e), amends the obstruction of justice statute to clearly prohibit retaliation against employee whistleblowers. The new provision states as follows:

Whoever knowingly, with the intent to retaliate, takes any action harmful to any person, including interference with the lawful employment or livelihood of any person, for providing to a law enforcement officer any truthful information relating to the commission or possible commission of any Federal offense, shall be fined under this title or imprisoned not more than 10 years, or both.

This provision has very significant implications. The law covers disclosures for any violation under federal law. It is not limited to employee reports of criminal corporate fraud. Moreover, employers who lose civil whistleblower cases may find themselves personally accountable in a subsequent criminal proceeding. Finally, this amendment could result in whistleblowers obtaining coverage under civil RICO. Specifically, violations of 18 U.S.C. 1513 constitute one of the “predicate acts” upon which a person may base a civil RICO claim. 18 U.S.C. 1961(1). The SOX amendment to 18 U.S.C. 1513 addressed the major roadblock identified by the U.S. Supreme Court which prevented whistleblowers from obtaining protection under civil RICO. See, Beck v. Prupis, 592 U.S. 494 (2000).

The criminal prohibition against whistleblower retaliation also directly relates back to the civil employee protection provision and the SEC’s regulatory authority. Section 3(b)(1) of the SOX states that “a violation by any person” of any provision of the SOX “shall be treated for all purposes in the same manner as a violation of the Securities Exchange Act of 1934 . . . and such person shall be subject to the same penalties, and to the same extent, for a violation of that Act.” Thus, if any publicly traded corporation discriminated against any employee for blowing the whistle concerning any federal offense, such discrimination would not only constitute a potential criminal obstruction of justice, but would also constitute a violation of the Securities Exchange Act and would subject that employer to administrative sanctions by the SEC and other enforcement actions.

Any employer who discriminates against a whistleblower in violation of either 18 U.S.C. 1514A or 18 U.S.C. 1513(e) also commits a violation of the Securities Exchange Act of 1934. Under the SOX, any person who retaliates against a whistleblower would be subject to SEC “penalties” to the “ same extent” as if that person violated the Securities Exchange Act of 1934.

Consequently, if an employer loses a SOX whistleblower claim, that employer may also be subject to criminal prosecution under the SOX obstruction of justice amendment and “penalties” under the Securities Exchange Act of 1934.

H. Fisk Johnson, head of the company, told Tax.com that he ordered an investigation of DeGuelle's concerns and, "I didn't like what I heard."

The Van Asdales were former in-house attorneys at International Game Technology (IGT). IGT began merger discussions with Anchor Gaming. The Van Asdales expressed concerns that communications made in connection with the merger were fraudulent and might be costly to shareholders who relied on them.  IGT fired the Van Asdales.

The district court granted IGT’s motion for summary judgment, concluding that the attorneys did not engage in protected conduct in that they "hadn’t reached a conclusion" that IGT engaged in actual shareholder fraud. The Ninth Circuit reversed, holding that "[r]equiring an employee to essentially prove the existence of fraud before suggesting the need for an investigation would hardly be consistent with Congress’s goal of encouraging disclosure." Noting that the legislative history of SOX makes clear that it protects "all good faith and reasonable reporting of fraud," the court held that plaintiffs’ "subjective belief that the conduct that they were reporting violated a listed law" sufficed to demonstrate protected conduct. Moreover, the court concluded that merely requesting an investigation of potential shareholder fraud constitutes protected conduct.

The Ninth Circuit also held that in-house counsel may proceed with a retaliation claim that may require the disclosure of attorney-client privileged information. According to the Ninth Circuit, "confidentiality concerns alone do not warrant dismissal of Van Asdales' claims." The Court adds that "Congress plainly considered the role [in-house] attorneys might play in reporting possible securities fraud," and thus, to the extent that a suit may implicate confidentiality-related concerns, a court must use "equitable measures at its disposal to minimize the possibility of harmful disclosures, not dismiss the suit altogether."

This decision finally points in the right direction of giving corporate fraud whistleblowers the same broad interpretation of protected activity that environmental, nuclear and safety whistleblowers have had for years.