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Sarbanes-Oxley Act Whistleblower Protection Basics

In an attempt to restore trust in financial markets following the collapse of Enron Corporation, Congress enacted the Sarbanes-Oxley Act in 2002. Often considered one of the most important whistleblower protection laws due to its diverse administrative, criminal and civil provisions, the Sarbanes-Oxley Act contains significant protections for whistleblowers to ensure that employees can safely disclose information which may harm investors, especially fraud. Modeled on whistleblower laws administered by the U.S. Department of Labor and the Whistleblower Protection Act, these protections are not limited to wrongfully discharged employees, but include additional requirements to create a more encompassing protection network and give more responsibility to corporations for managing complaints internally.

For example, all publicly-traded companies are required to establish internal avenues to file whistleblower complaints and create procedures to protect the confidentiality of employees who file allegations. SOX also amended the federal obstruction of justice statute to criminalize retaliation against whistleblowers who provide factual information to law enforcement regarding a possible federal offense. SOX, along with the SEC’s regulations, also impose new ethical standards on attorneys practicing before the SEC, requiring them, under certain circumstances, to become whistleblowers themselves. In fact, attorney whistleblowers may be required to report “up the ladder” internally, and then, if nothing is done to correct the conduct at issue, report externally.

SOX prohibits a publicly traded company, or any contractor or agent of such company, from retaliating against an employee who blows-the-whistle on what she reasonably believes to be a violation of statutes prohibiting mail fraud, wire fraud, bank fraud, or securities fraud, any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders. . Any complaints must be filed with the Occupational Safety and Health Administration (OSHA) within 180 days of the violation or discovery of the violation.

After filing, complaints are investigated by OSHA, which eventually issues a final determination that may be appeal for de novo review before an ALJ. The ALJ’s determination may then be appealed to the Administrative Review Board (ARB). Additionally, the “kick-out” provision of SOX allows for a proceeding to be moved to Federal District Court when it has been pending for more than 180 days with OSHA without a determination, and neither the plaintiff nor their counsel has acted in bad faith.
Prevailing employees in a SOX action are entitled to reinstatement and back pay as well as attorney’s fees and costs.

KEYWORDS: Sarbanes-Oxley; SOX; whistleblower; securities fraud; wire fraud; mail fraud; investor fraud; whistleblower attorney; SOX attorney; retaliation; SEC

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