Whistleblower Law Blog

SOX Protected Conduct Includes the Disclosure of a Violation of Any SEC Rule or Regulation

More than five years after SOX was enacted, the scope of protected conduct is still unsettled, but one aspect of protected conduct is becoming clear, SOX protection is not limited solely to disclosures about shareholder fraud. Disregarding the plain meaning of SOX, employers have convinced a few DOL ALJs and at least one federal judge that SOX protected conduct is limited exclusively to complaints pertaining to shareholder fraud. On February 7, 2008, Judge Marrero of the Southern District of New York held in Mahony v. Accenture Ltd., 2008 WL 344710 (S.D.N.Y 2008) that SOX contains six provisions that enumerate six specific forms of misconduct which, if reported by an employee, protect the whistleblower from employer retaliation: (1) 18 U.S.C. § 1341 (mail fraud); (2) 18 U.S.C. § 1343 (wire fraud); (3) 18 U.S.C. § 1344 (bank fraud); (4) 18 U.S.C. § 1348 (securities fraud); (5) any rule or regulation of the SEC; or (6) any provision of federal law relating to fraud against shareholders. Applying basic principles of statutory construction, Judge Marrero rejected the employer’s contention that the phrase “related to fraud against shareholders” modifies each of the preceding phrases. Accordingly, a disclosure about a reasonably perceived violation of any rule of regulation of the SEC, including rules designed to prevent fraud, is protected under SOX. For example, a disclosure about inadequate internal accounting controls would be protected.

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