SOX Whistleblower and FCPA Updates and Other Notes from Around the Web
Sarbanes-Oxley Act Whistleblower Updates: In a May 31, 2006 ruling, an Administrative Review Board (ARB) of the U.S. Department of Labor has answered two important questions arising Section 806 of the Sarbanes-Oxley Act, the so-called Whistleblower provisions. (Prior D & O Diary posts regarding the Sarbanes-Oxley Whistleblower provisions can be found here and here.). First, the ARB held that the nonpublicly traded subsidiary of a publicly traded company can be a proper defendant in a Sarbanes-Oxley Whistleblower case if the subsidiary acted as an agent for the public company. The determination is one of fact, based upon the subsidiary’s attributes of agency, rather than one of law based on the organizational relationship between the parent and the sub. This holding is significant because it was not previously clear whether the Whistleblower protection would extend to the employee of a private sub of a public company; while the issue is one of fact, the possibility of extension broadens the scope of potential defendants. Second, the ARB also held that it does not matter whether or not the employee who is claiming retaliation did not believe that anything fraudulent had occurred so long as the employee reasonably believed that an SEC rule or other subject "in the realm covered by" the Act had been violated. Both of these holdings tend to broaden the potential scope of Sarbanes Oxley Whistleblower protection and confirm the D & O Diary’s view that the Whistleblower provisions have the potential to become a very serious concern for employers. A discussion of this case can be found in a July 6, 2006 post on Broc Romanek’s CorporateCounsel.net blog.
In an update on the original Sarbanes-Oxley Whistleblower action, cfo.com reports in a July 7, 2006 post that the Department of Labor has intervened on behalf of David Welch, the former CFO of Cardinal Bankshares whom an administrative law judge has ordered to be reinstated. The post also reports that Welch has filed a U.S. District Court complaint to force the company to comply with the ALJ’s order. The D & O Diary’s prior post on the Cardinal Bankshares case can be found here.
Another interesting issue under the Sarbanes Oxley Whistleblower provision is its extraterritorial applicability. A July 7, 2006 post on law.com entitled "SOX Whistleblower Rule Triggers a Continental Divide" discusses the struggle between regulatory authorities in the US and in the EU over the applicability and requirements of the Sarbanes Oxley Whistleblower provisions, and in particular the potential conflict between the whistleblower data gathering requirements and EU data protection and privacy laws.
Foreign Corrupt Practices Act Update: On July 5, 2006, the SEC announced simultaneous filing of FCPA charges against and the agreement to settle by four former employees of ABB. The SEC alleges that the four individuals participated in a scheme to pay bribes to Bonga Oil Field. The complaint alleges that as a result of the four defendants’ actions, ABB paid officials at the Nigerian state-owned oil production and exploration agency approximately $1 million in bribes. The four consented to entry of judgment against them without admitting or denying the allegations, and agreed to pay fines ranging between $40,000 and $50,000. One of the four also paid approximately $60,000 in disgorgement and interest. ABB itself previously agreed to final judgment in connection with these and other illicit payments, and consented to pay $5.9 million in disgorgement and interest and an ABB subsidiary agreed to pay a civil penalty of $10.5 million.
Who (if anyone) will succeed Milberg Weiss?: The July 7, 2006 New York Times (registration required) has an article reviewing the efforts of the various securities class action plaintiffs’ firms to jockey for position while Milberg Weiss struggles to defend itself against its own criminal indictment. At least for purposes of the Times article, the other plaintiffs’ firms are doing a surprisingly good job at maintaining the appearance of decorum. But even if the other firms can restrain themselves from the outward appearance of seeking to profit from Milberg Weiss’ misfortune, the real pressure on the Milberg Weiss firm will come from the decisions of the various lead plaintiffs the firm represents, as to whether the indicted firm appropriately should be representing the class on whose behalf the lead plaintiff is acting. Here is a link to a May 20, 2006 Wall Street Journal (subscription required) article reviewing various cases where the lead plaintiffs have decided to remove the Milberg Weiss firm from the cases as a result of the firm’s indictment.
Options Backdating and the SOX Clawback Provisions: UCLA Law School Professor Stephen Bainbridge has a July 6, 2006 post on his ProfessorBainbridge.com blog discussing whether or not the options backdating scandal will provide the first occasion for the implementation of the clawback provisions under Section 304 of the Sarbanes Oxley Act. The clawback provisions require executives at companies that restate their financials to return to their companies bonus compensation the executives received in the 12 months following the original issuance of the later-restated financials. Professor Bainbridge, who is critical of the clawback provision, is unaware of any attempts to date to use the clawback provisions in connection the options backdating investigations. The comments that accompany his post raise the interesting question whether the clawback provisions can be applied to require disgorgement of compensation awarded following restatement of financials that were originally created prior to the enactment of the Sarbanes-Oxley Act. A prior D & O Diary post commenting on the possible applicability of the clawback provisions to companies involved in the options backdating investigation may be found here.
SOX and Non-Profit Organizations: One of the more interesting consequences of the enactment of the Sarbanes-Oxley Act has been the statute’s application far beyond the public company arena to which it was primarily addressed. A July 7, 2006 post on the accountingweb.com details the impact that the Act is having in the non-profit sector. A May 2006 article by The D & O Diary’s author describing the Act’s impact on privately held companies can be found here.
In an update on the original Sarbanes-Oxley Whistleblower action, cfo.com reports in a July 7, 2006 post that the Department of Labor has intervened on behalf of David Welch, the former CFO of Cardinal Bankshares whom an administrative law judge has ordered to be reinstated. The post also reports that Welch has filed a U.S. District Court complaint to force the company to comply with the ALJ’s order. The D & O Diary’s prior post on the Cardinal Bankshares case can be found here.
Another interesting issue under the Sarbanes Oxley Whistleblower provision is its extraterritorial applicability. A July 7, 2006 post on law.com entitled "SOX Whistleblower Rule Triggers a Continental Divide" discusses the struggle between regulatory authorities in the US and in the EU over the applicability and requirements of the Sarbanes Oxley Whistleblower provisions, and in particular the potential conflict between the whistleblower data gathering requirements and EU data protection and privacy laws.
Foreign Corrupt Practices Act Update: On July 5, 2006, the SEC announced simultaneous filing of FCPA charges against and the agreement to settle by four former employees of ABB. The SEC alleges that the four individuals participated in a scheme to pay bribes to Bonga Oil Field. The complaint alleges that as a result of the four defendants’ actions, ABB paid officials at the Nigerian state-owned oil production and exploration agency approximately $1 million in bribes. The four consented to entry of judgment against them without admitting or denying the allegations, and agreed to pay fines ranging between $40,000 and $50,000. One of the four also paid approximately $60,000 in disgorgement and interest. ABB itself previously agreed to final judgment in connection with these and other illicit payments, and consented to pay $5.9 million in disgorgement and interest and an ABB subsidiary agreed to pay a civil penalty of $10.5 million.
Who (if anyone) will succeed Milberg Weiss?: The July 7, 2006 New York Times (registration required) has an article reviewing the efforts of the various securities class action plaintiffs’ firms to jockey for position while Milberg Weiss struggles to defend itself against its own criminal indictment. At least for purposes of the Times article, the other plaintiffs’ firms are doing a surprisingly good job at maintaining the appearance of decorum. But even if the other firms can restrain themselves from the outward appearance of seeking to profit from Milberg Weiss’ misfortune, the real pressure on the Milberg Weiss firm will come from the decisions of the various lead plaintiffs the firm represents, as to whether the indicted firm appropriately should be representing the class on whose behalf the lead plaintiff is acting. Here is a link to a May 20, 2006 Wall Street Journal (subscription required) article reviewing various cases where the lead plaintiffs have decided to remove the Milberg Weiss firm from the cases as a result of the firm’s indictment.
Options Backdating and the SOX Clawback Provisions: UCLA Law School Professor Stephen Bainbridge has a July 6, 2006 post on his ProfessorBainbridge.com blog discussing whether or not the options backdating scandal will provide the first occasion for the implementation of the clawback provisions under Section 304 of the Sarbanes Oxley Act. The clawback provisions require executives at companies that restate their financials to return to their companies bonus compensation the executives received in the 12 months following the original issuance of the later-restated financials. Professor Bainbridge, who is critical of the clawback provision, is unaware of any attempts to date to use the clawback provisions in connection the options backdating investigations. The comments that accompany his post raise the interesting question whether the clawback provisions can be applied to require disgorgement of compensation awarded following restatement of financials that were originally created prior to the enactment of the Sarbanes-Oxley Act. A prior D & O Diary post commenting on the possible applicability of the clawback provisions to companies involved in the options backdating investigation may be found here.
SOX and Non-Profit Organizations: One of the more interesting consequences of the enactment of the Sarbanes-Oxley Act has been the statute’s application far beyond the public company arena to which it was primarily addressed. A July 7, 2006 post on the accountingweb.com details the impact that the Act is having in the non-profit sector. A May 2006 article by The D & O Diary’s author describing the Act’s impact on privately held companies can be found here.
posted by Kevin LaCroix at 1:07 PM
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