Wednesday, March 05, 2014

Protecting Corporate Whistleblowers

Yesterday, March 4, 2014, is a date that will live in history.
By 6-3 vote, the Supreme Court of the United States (SCOTUS) sad that the Sarbanes-Oxley whistleblower law protects all private sector whistleblowers who report concerns about fraud involving publicly-held companies, including lawyers and accountants. Jackie Hosang Lawson and Jonathan Zang v. FMR LLC d/b/a Fidelity Investments, Supreme Court Case No. 12-3, --- U.S. --- (March 4, 2014).
University of Washington Law Professor Eric Schnapper argued the case and won a total victory yesterday.
The decision was written by Supreme Court Justice Ruth Bader Ginsberg, and was concurred in by Justices Breyer, Thomas, Scalia, Kagan and Chief Justice Roberts (with a dissent by Justices Sotomayor, Kennedy and Alito).
After the fall of Enron, Congress decided to expand Department of Labor whistleblower law by protecting ethical employees concerned about fraud.
Fidelity Investment, and other rebarbative elements of Corporate America are fighting these Sarbanes-Oxley (SOX) cases tooth and toenail, loathing accountability.
The stakes are high.
The future of democracy is at stake.
The future of shareholder and employee rights is at stake.
Big Business has won most of its cases before the Supreme Court in recent decades. But not this one.
The Supreme Court likes whistleblowers. It usually rules for them. Disclosure of wrongdoing is favored under the law. As it says in the Book of Isaiah, "You shall know the truth, and it will set you free."
The Lawson case involved the Fidelity mutual fund, one of many publicly-held mutual fund companies that have no employees.
As Justice Ruth Bader Ginsburg wrote for the Supreme Court majority, Ms. "Lawson alleges that she was constructively discharged for reporting accounting pratices that overstated expenses associated with managing certain Fidelity mutual funds....By inflating its expenses, and thus understating its profits, [FMR] culd potentially increase the fees it would earn from the mutual funds -- fees ultimately paid by the shareholders of those funds."
Fidelity's contractors retaliated against two ethical employees' disclosures, and then argued bizarre theories of statutory interpretation that would have left the ethical employees unprotected. The Supreme Court roundly rejected their decision, in yet another Supreme Court victory for whistleblowers.
It was a major defeat for retaliators, fraudfeasors and those who practice financial fraud. In fact, the lede of an article in CFO Magazine states that, "Attorneys that (sic) represent companies reacted with surprise and criticism to a Supreme Court ruling Tuesday that vastly expanded thye scope of the Sarbanes-Oxley Act's whistleblower protection."
During oral argument on November 12, 2013, the transcript suggests, it was apparent that most Supreme Court Justices had little regard for the position taken by the alleged retaliatory fraudfeasor's lawyer, the Chamber of Commerce of the United States, and other Big Business apologists.
Arguments were made that the Sarbanes-Oxley law might protect someone's gardener who might disclose fraud.
Rising to the bait, a very experienced longtime former Supreme Court practitioner, Chief Justice John Roberts at one point asked the respondent's counsel, "What about the butler who does, in fact, hear all this information about a conspiracy and wire fraud?"
Yet Gibson, Dunn & Crutcher Washington, D.C. managing partner Mark A. Perry, the counsel for the respondent, actually concluded his argument with a claim that Congress did not mean to cover "six million" businesses that might one day be contractors for publicly-held companies. Perry said: "if a member of Congress, I would submit, had stood up on the floor and suggested that, it would have been met with debate, derision and defeat."
Ridicule and hubris are seldom successful tactics in appellate arguments, especially before the Supreme Court. Mark Perry was formerly law clerk to former Justice Sandra Day O'Connor and to Ninth Circuit Court of Appeals Chief Judge Alex Kozinski. He should have known better.
The 6-3 decision is a victory for ethical employees everywhere, as well as for corporate stockholders who are too often cheated by those exercising suzerainty over what Justice Louis Dembitz Brandeis called "Other People's Money."
Stockholders everywhere will benefit. In fact, the stock market was up after yesrterday's decision.
Three cheers for Professor Eric Schnapper and all who worked on and decided the case.
The Chamber of Commerce of the United States and other corporate lobbyists were glum yesterday, and corporate fraudfeasors everywhere are quaking in their boots today. They are all worried about where the next whistleblower case will be filed, and against whom, and for what. Perhaps it might involve some of the publicly-held companies that may have been deluding investors with plans to build some 70,000 homes in St. Johns County, which compliant St. Johns County Commissioners voted to allow under the ancien regime.
Paying bribes and making false entries in books and accounts is covered by Sarbanes-Oxley, too.
So if anyone from Toll Brothers (TOL), KB Home (KBH), Ryland (RYL), DR Horton (DRH), Pulte (PLH), Lennar (LEN) or other tree-killing, clear-cutting, uglifying cheesy home builders are involved in possible wrongdoing in St. Johns County, let the fraudfeasors beware ("caveat vendor").
The March 4, 2014 Supreme Court decision now protects employees of their law firms, accounting firms, construction and other contractors.
Viva!
St. Johns County Chamber of Commerce members: your dues money was just used and abused to support the anti-consumer, anti-employee and anti-shareholder brief of the Chamber of Commerce of the United States. You might wish to resign your Chamber memberships, or at least object vigorously to such pettifoggery -- it's your money!
Once upon a time, I was honored to represent corporate and government whistleblowers before the Department of Labor for years. With the help of DOL's then-Chief Administrative Law Judge Nahum Litt, our American Bar Association Young Lawyers Division and Individual Rights and Responsibilities Section and the ABA Judicial Administration Division and Conference of Administrative Law Judges all pitched in and helped to persaude the American Bar Association House of Dlegates to pass a corporate whistelbower resolution at its Mid-Winter meeting in Los Angeles in February 1990. Our YLD and IRR resolution called on protection for anyone disclosing violations of statutes or regulations.
We won, by voice vote of roughly 4-1.
The only ABA group that opposed us was the ABA Public Contracts Section, whose histrionic delegate expressed the primal fear that his own law firm employees might become whistleblowers.
Wonder why?
A government contractor lawyer inspidly suggested that one of the ABA House of Delegates law firm employees might seek protection for blowing the whistle on putting the staple in the wrong place on a government form.
That's not what they really feared -- corporate lawyers who counsel fraudfeasors, as Vinson & Elkins did, really fear fraud being exposed.
The Supreme Court expressly said yesterday that outside lawyers and accountants for publicly held companies are protected by Sarbanes-Oxley's whistleblower provision.
"Malefactors of great wealth," as FDR called them, "the whole world is watching" you today. Your own lawyers and accountants are now empowered to blow the whistle on your fraudfeasing ways.
This is a great country, with some pretty good laws, which can and will now be enforced to protect employee rights to blow the whistle on financial wrongdoers.
It's good for consumers, employees and stockholders and bad for big shot crooks, who should go to jail more often. As President Jimmy Carter said, "I see no reason why big shot crooks should go free, and the poor ones go to jail."
Viva!

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