2002 Sarbanes-oxley Act

Professor Wins 'Watershed' SOX Whistleblower Case

Newswise — SALISBURY, MD---In what law firms and academic blogs are calling a watershed case, the U.S. Department of Labor’s Administrative Review Board (ARB) has significantly expanded whistleblower protection under the 2002 Sarbanes-Oxley Act (SOX) following successful arguments by a Salisbury University professor.

The ARB decision rewrote existing law by finding that one need only express a “reasonable belief” of a SOX violation to engage in protective activity, the protected activity need not describe an actual violation of law, SOX complaints do not have to relate to fraud against shareholders, and a SOX complaint need not establish criminal fraud to prevail on a retaliation claim.

In January, Dr. E. Patrick McDermott, a practicing attorney, professor in the Management and Marketing Department of SU’s Franklin P. Perdue School of Business and director of research and evaluation for the Center for Conflict Resolution at SU, argued in favor of the plaintiffs, Theresa Neuschafer (a clinical research nurse) and her colleague Kathy Sylvester (a case report forms manager). They claimed they were terminated from their positions at pharmaceutical research company Parexel International after reporting their belief that the company breached the U.S. Food and Drug Administration’s Good Clinical Practices and used erroneous information to falsify data during the clinical testing of a drug.

This was a high-profile appeal, with the U.S. Securities and Exchange Commission and the Solicitor’s Office of the U.S. Department of Labor filing “friend of the court” briefs on the side of the plaintiffs, while the U.S. Chamber of Commerce filed a brief in support of Parexel.

“We teach about SOX in our classes, so it was an honor to help change the law so that shareholders in publicly traded companies are better protected,” said McDermott. “This decision, plus the recent Dodd-Frank legislative amendments, will lead to more effective management practices in publicly traded companies. I expect that our Perdue School of Business graduates, particularly our accounting majors, will play an important part in these compliance efforts.”

This was the first time the ARB, under any administration, scheduled oral arguments for a Sarbanes-Oxley whistleblower case.

“The Sylvester decision is a significant departure from the decision of the prior administration,” said Richard Renner, legal director of the National Whistleblowers Center in Washington, D.C., on the Whistleblowers Protection Blog. “All those decisions that required protected activity to ‘definitively and specifically’ implicate a violation of law are now out of date.” The latest decision “marks a decided turn in favor of recognizing whistleblowers as servants of the public purpose and deserving of strong protection. The ARB is clearing away the hurdles that made SOX so difficult for whistleblowers during its first eight years.

Big majority of executives now think Sarbanes-Oxley Act isn't so ...

When the Sarbanes-Oxley Act was enacted back in 2002, lots of lawyers and business execs predicted that it would cost a lot, that it would be a huge burden, etc., etc. According to a recent survey , however, says the NY Times Dealbook blog , “70 percent of the more than 400 respondents who have put into place accounting controls required by Sarbanes-Oxley at their companies said that the benefits outweighed its costs.” (Hat tip: Ethisphere .)

When Sarbanes-Oxley was enacted, I was the general counsel of a publicly-traded software company; I was pretty involved in our first Section 404 internal-controls assessment, which was spearheaded mainly by our top-flight chief accounting officer. Certainly in the short run the Act was a pain. It seemed clear to me, though, that in the long run the Act would compel businesses to make sure they had a good handle on their operations, and that couldn’t help but be good for business.

From my own professional perspective, I thought the Act would be a godsend for in-house counsel — it would make it easier for them to say no to overly-aggressive business people without coming across as “Dr. No,” someone who wasn’t a team player. (I hasten to add that I never had to deal with that kind of problem at my former company.

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