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As a C-level executive, you have discovered that an employee, John Rankenfile, has information that a regional vice president has engaged in fraud and financial misconduct. Rankenfile is considering making a formal report and has come to you for advice. Before taking any action, an exec should consider the potential consequences under the Sarbanes-Oxley Corporate Fraud and Accountability Act of 2002 (SOX). By now, most people are familiar with the genesis of Sarbanes-Oxley. Congress passed the act and President George W. Bush signed it into law in the summer of 2002 following misconduct by large, publicly traded companies. While the act is concerned primarily with corporate governance and financial reporting, it contains protections for whistle-blowing employees that can create significant civil and criminal liability for C-level executives and the companies they work for. Using common questions asked by company execs, this article uses the Q&A format to explain how an employee’s complaint about an executive implicates Sarbanes-Oxley. Q: I am a C-level exec for a privately held company. Do the act’s provisions apply? A: In general, Sarbanes-Oxley civil protections cover officers, employees, contractors, subcontractors and agents of publicly traded companies. However, depending on how courts define the terms “contractor, subcontractor and agent,” companies that do business with public companies also may be covered. In addition, the criminal provisions are not limited to publicly traded companies. C-level execs also should be aware that the criminal and civil provisions can apply not only to covered companies, but also to individual officers and employees. Q: Rankenfile, an anti-tobacco activist, reports that he saw illegal Cuban cigars in the VP’s office. Is Rankenfile protected? A: The civil protections provided by Sarbanes-Oxley do not extend to all forms of corporate whistle-blowing, but rather protect those employees who report fraud or financial misconduct. More specifically, Sarbanes-Oxley protects employees who provide information about actions they reasonably believe to be mail, wire or bank fraud; violations of federal securities laws; violations of Securities and Exchange Commission rules; or other fraud against shareholders. The civil provisions protect not only employees who report violations, but also those who participate in or cooperate with an investigation into misconduct. Q: Rankenfile told a supervisor that one of his co-workers has violated SEC rules. Is Rankenfile protected? A: The common concept of whistle-blowing often involves an employee who reports misconduct to an organization outside of the company, usually a law enforcement or regulatory agency. While this type of whistle-blowing is protected, the Sarbanes-Oxley civil protections are much broader. In addition to federal regulatory and law enforcement agencies, an employee may report to a member of Congress or a congressional committee, a person with supervisory authority over the employee, or any other person who has authority to investigate, discover or terminate the misconduct. Q: Our company thinks Rankenfile may have filed a report solely to get even with his supervisor because he received a poor evaluation. What can we do? A: Sarbanes-Oxley prohibits an unusually broad range of activities. An employer cannot “discharge, demote, suspend, threaten, harass or in any manner discriminate against an employee in the terms and conditions of their employment” because of their protected activity. The inclusion of threats and harassment as prohibited conduct makes this statute much broader than the anti-retaliation provisions contained in other federal employment statutes. The civil provisions make no exception based on the intent of the employee or even the accuracy of the information provided. Q: Rankenfile is threatening to file a suit based on Sarbanes-Oxley. Should we be worried? A: Like other federal employment discrimination laws, an aggrieved employee must first attempt to pursue an administrative remedy before filing suit, per Title 29 of the Code of Federal Regulations ��1979.100-.114. In other words, the employee’s first step is to file a complaint with the U.S. Department of Labor, and then comply with its administrative scheme (which mirrors the one used with whistle-blowing airline employees). It is important to remember, however, that the administrative process is complex and investigatory in nature, and can be just as disruptive from a company’s perspective as a suit. Q: Our company has determined that Rankenfile has been improperly discharged. Can Rankenfile seek reinstatement? A: The civil provisions provide that a prevailing employee “shall be entitled to all relief necessary to make the employee whole.” This means that in addition to the usual claims for lost wages and other damages, an employee can obtain full reinstatement. Q: I’m an executive with an aversion to small spaces and forced labor. Can I be subject to criminal liability under Sarbanes-Oxley? A: In addition to the civil protections for whistle-blowers, Sarbanes-Oxley makes it a criminal offense to retaliate against anyone who provides “truthful information relating to the commission or possible commission of any federal offense” to a law enforcement officer. The breadth of this statute may prove to be one of the most problematic parts of Sarbanes-Oxley. First, the statute applies to any individual, regardless of the status of his or her employer. Thus, employees of privately held companies and publicly traded companies are equally protected. Second, the statute appears to incorporate the entire federal penal code. In other words, unlike the rest of the act, the criminal provisions extend the whistle-blower protection beyond the fraud and financial realm. Thus, Rankenfile’s report concerning the VP’s possession of illegal Cuban cigars could fall within the scope of the statute’s protection. Finally, the statute specifically includes “interference with the lawful livelihood or employment of any person” as a prohibited act of retaliation. While Sarbanes-Oxley’s impact has been felt most strongly in the finance departments and boardrooms of publicly held companies, C-level execs should not overlook the whistle-blower protections outlined above. The civil and criminal penalties provided in these anti-retaliation provisions should make the cautious C-level exec proceed with care whenever an employee’s allegations of corporate wrongdoing are involved. Bruce Griggs is the managing shareholder for the Austin office of Ogletree, Deakins, Nash, Smoak & Stewart. He represents public and private employers in all aspects of labor and employment law, including federal and state litigation. He is a 1989 graduate of the University of Virginia School of Law. Robert Chance is an associate with the firm. An honors graduate of Southern Methodist University Dedman School of Law, Chance represents employers in all aspects of labor and employment law.

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