Whistleblower Law: Reasonable Belief that Corporate Managers are Engaging in Fraudulent Actions and Report of Potential Fraud Before it Takes Place is Sufficient Under Sarbanes Oxley Whistleblower Law

In assessing whistleblower claims questions often arise as to whether the corporate conduct at issue is actually fraud and whether a report of potential fraud before it occurs is sufficient. In Wiest v. Lynch, 2013 U.S. App. LEXIS 5345 (3rd Cir. March 19, 2013), the United States Court of Appeals decided both issues in favor of the employee whistleblower. In Wiest, a former employee filed a Sarbanes-Oxley Act whistleblower claim against Tyco Electronics Corporation and several officers and directors. The Third Circuit reversed the District Court and found that the employee must only express a reasonable belief that corporate managers are taking actions that could run afoul of a anti-fraud law and that an employee is not required to prove that the employee’s communications to his supervisors “definitively and specifically relates to” an existing violation of a anti-fraud law.

In Wiest, the employee was employed by Tyco’s accounting department for 31 years and his employment was terminated after he raised issues concerning tax deductions for large corporate for events at resorts which the employee alleged demonstrated a pattern of rejecting and questioning expenses that failed to satisfy accounting standards or securities and tax laws. The employee filed a whistleblower claim under SOX which prohibits publicly traded companies and their employees from retaliating against an employee who provides information or otherwise assists in an investigation regarding any conduct which the employee reasonably believes constitutes fraud against shareholders, when the information is provided to or the investigation is conducted by a person with supervisory authority over the employee or any other employee with authority to investigate, discover, or terminate misconduct. .

The Third Circuit’s decision makes it clear that in order to constitute protected activity, the information contained within an employee’s whistleblower communication does not have to implicate a reasonable belief of an existing violation and that an employee’s communication about a violation that has not yet occurred, as long as the employee reasonably believes that the violation is likely to happen is sufficient because the corporate code of silence not only hampers investigations, but also creates a climate where ongoing wrongdoing can occur with virtual impunity. Thus, the Third Circuit found that “It would frustrate that purpose to require an employee, who knows that a violation is imminent, to wait for the actual violation to occur when an earlier report possibly could have prevented it.”

Abramson Employment Law represents employees who have claims under numerous whistleblower laws including Sarbanes Oxley and the Pennsylvania Whistleblower Law. See our website at http://www.job-discrimination.com/

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