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In its two-year existence, the Sarbanes-Oxley Act has become one of the most popular laws for employee whistle-blower claims. The good news for companies is that the vast majority of cases brought under the act have been dismissed on legal grounds. The bad news: Employees have prevailed in half of the claims that have been heard on the merits so far. Most of the ten federal statutes that allow whistle-blower claims focus on worker health and safety and environmental misconduct; Sarbanes-Oxley is the only one to target financial wrongdoing. Employees at public companies who allege that they’ve been punished for reporting business fraud have sought the act’s potential relief, which includes reinstatement, back pay, and litigation costs. As of mid-April, according to statistics compiled by the U.S. Department of Labor’s Occupational Safety and Health Administration, 228 claims have been filed under Sarbanes-Oxley. (Congress delegated authority over Sarbanes-Oxley cases to OSHA, which since 1972 has administered all federal whistleblower cases.) This makes the new law “first or second” most popular among federal whistle-blower statutes, says John Vittone, chief administrative law judge at the Labor Department. Yet employees are finding that it’s a long road from a claim to a check in the mail. Sarbanes-Oxley sets out an administrative procedure in which complaints are first processed by an OSHA investigator, who issues a finding based on his examination. So far, investigators have dismissed more than 80 percent of the 156 claims examined. Parties can appeal an investigator’s finding to the Office of Administrative Law Judges (OALJ), headed by Judge Vittone. Employers are faring well at this stage too. Of the 43 cases resolved on appeal to date, plaintiffs have prevailed only twice. But that doesn’t mean companies can rest easy, says Stewart Manela. A partner in the Washington, D.C., office of Arent Fox, Manela has advised a number of corporate clients on Sarbanes-Oxley. He says the high dismissal rate of claims under the law is typical of a new statute, when the extent of its coverage is still an open question. Plaintiffs and their lawyers are still “testing the margins” of the act, Manela explains. In fact, a review of Sarbanes-Oxley complaints � which are published on the OALJ’s Web site � reveal that the bulk have been tossed out on legal, not factual, grounds. For instance, examiners in several cases have held that the statute does not apply retroactively. Timing glitches have also snagged a number of other would-be plaintiffs who missed the 90-day deadline that starts ticking the moment the alleged retaliation happens. Only four cases have reached a ruling on their underlying merits, with decisions split evenly between employer and employee. (The losing parties in all four actions have appealed to the OALJ review board.) This past January, an obscure bank in the Blue Ridge Mountains of Virginia earned the dubious distinction of being the first company to lose a Sarbanes-Oxley whistle-blower claim. The Bank of Floyd found itself on the receiving end of a complaint brought by former CFO David Welch after he was fired in September 2003. Welch alleged he was discharged after refusing to sign off on financial statements he believed to be misleading. The administrative law judge who heard the case on appeal found that the bank’s explanation � that Welch was fired for insubordination � did “not ring true.” The judge awarded Welch reinstatement, back pay with interest, and litigation costs. Later in January, Southwest Securities Inc., a Dallas brokerage firm, also lost a whistle-blower case. Margot Getman, a Southwest research analyst, alleged that the company fired her for refusing to boost the stock rating of a would-be client. The judge hearing the claim found that the pressure put on Getman to change her rating constituted financial fraud under “the wide range of misconduct” defined by Sarbanes-Oxley, and her refusal to do so qualified as protected whistle-blowing activity. But in two other cases, the employer has prevailed. In January a judge dismissed a case against Merrill Lynch & Co., Inc., brought by former broker Robert McIntyre, finding no evidence to support his claim that he was fired for complaining about the alleged unethical trading practices of a fellow broker. And in March, Intel Corporation defeated a claim by Ammar Halloum, a production cost analyst. Halloum claimed that he was fired after he told the Securities and Exchange Commission that his supervisor had instructed him to delay payment of invoices “to enable Intel to meet Wall Street expectations.” The judge found that Halloum � who by the time he went to the SEC had been cited for subpar performance and violating company rules � was “on his way out anyway.” Though just a handful, these decisions provide an early glimpse into how Sarbanes-Oxley’s whistle-blower provisions are playing out. The administrative law judges who heard these four cases drew heavily on case law from other federal discrimination statutes such as Title VII of the Civil Rights Act of 1964, says Robert Sheeder. (A partner in the Dallas office of Jenkens & Gilchrist, Sheeder represented Merrill Lynch against McIntyre.) In fact, three of the four decisions have expressly held that McDonnell Douglas Corp. v. Green � the 1973 U.S. Supreme Court case that set the standard of proof for Title VII cases � and its progeny apply in Sarbanes-Oxley actions. Yet the standard employment law analysis is undergoing some unique twists when applied in the financial context, says John Scalia. An employment lawyer in the McLean, Virginia, office of Greenberg Traurig, Scalia represents companies in whistle-blower cases. “Investigators, judges, and lawyers used to grappling with employment law issues are suddenly confronting complex issues of accounting principles and securities law,” Scalia says. This lack of familiarity can create uncertainty for companies defending these claims, he says. Scalia points to the Southwest Securities decision as an example of this risk. In that case, Getman did not even make an internal complaint about the pressure she was subjected to, but simply refused to change her stock rating. The fact that the judge decided Getman was the target of retaliation, Scalia says, “seemed like a very broad reading of what constitutes protected whistle-blower activity.”

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