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District Court Decision Broadly Construes Sarbanes-Oxley Protected Conduct

Judge Christopher F. Droney of the United States District Court for the District of Connecticut held that Sarbanes-Oxley (SOX) whistleblower Mary Barker need only have “reasonably believed” her employer’s violations of securities law were material to plead a SOX whistleblower claim.  Barker alleges that UBS retaliated against her following her reporting to compliance officers that UBS failed to report millions in assets to its shareholders.  Although UBS’s omission is arguably immaterial, the court ruled that the omission did not have to be material for Barker to be protected under the Sarbanes-Oxley Act:

As Barker is not a lawyer, nor does she appear to have any specialized knowledge of federal securities law, it seems objectively reasonable that she would imagine unreported assets valued subsequently at over $80 million substantial enough to trigger federal scrutiny.

And regarding Barker’s whistleblower retaliation claim, the court further stated:

. . . while certain employees at UBS did encourage Barker in her investigation, her complaint asserts valid reasons why she could still believe an intentional misrepresentation was occurring.  A reasonable person could find that Barker’s supervisors were attempting to cover up the incorrect reporting, based on the initial lack of response by [a supervisor], coupled with [another supervisor’s] instructions to Barker that she was not to speak of the exchange seat discrepancy, as well as the fact that a meeting was held about how to “spin” the accounting error. That Barker felt obligated to approach [the head of UBS’s Legal Compliance Division] for advice about the disclosure indicates that she believed her supervisors were unlawfully encouraging her to conceal important information that had legal significance for shareholders.

To be protected by SOX, whistleblowers do not have to be certain that the fraud or misrepresentations they report are material; they only have to reasonably believe it to be material.  To learn more about the Sarbanes-Oxley Act and reporting shareholder fraud, click here.

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