US Supreme Courts Broadens SOX Whistleblower Protections

In Lawson v. FMR LLC, the US Supreme Court held that the Sarbanes-Oxley Act does extend its whistleblower protections to include employees of privately held contractors that do work for public companies. The Supreme Court case was filed by two ex-employees of privately held companies engaged in mutual funds investments.

The plaintiffs contend that their employers acted against them for bringing up issues they had related to mutual funds. Meantime, their former employers tried to have the lawsuits dismissed, contending that because the plaintiffs had been employees of privately held companies, they could not avail of the whistleblower protections under the SOX Act. Such protections prohibit retaliation against an employee by any officer, contractor, employee, agent, or subcontractor of a public company.

Although previous to Lawson, other federal district courts had made the same assertion, in this latest case, the district court said that the whistleblower provision does in fact protect the employees of any related entity of a public company. This protection would therefore apply to the Lawson plaintiffs.

Later, although divided, a U.S. Court of Appeals for the First Circuit panel said that the protection was limited to publicly traded companies’ employees. Now, however, the Supreme Court is overruling the appeals court, holding that SOX’s whistleblower provisions do in fact apply to employees of privately held contractors that work for public companies. With this broader reach, more whistleblower claims brought under Sarbanes-Oxley will likely follow.

In other whistleblower news, ex-JPMorgan Chase (JPM) employee Keith Edwards was just awarded $73.8 million for his role in helping the government compel the firm to agree to a $614 million settlement over mortgage lending practices that allegedly violated the false claims act.

As part of the agreement, the bank admitted that it turned in thousands of mortgages to be insured by the Federal Housing Administration or the Department of Veterans Affairs even though they did not qualify to receive government guarantees. JPMorgan also acknowledged that it did not disclose problems it found during internal reviews.

Whistleblowers that report certain violations can be entitled to a percentage of what is recovered. Under the Dodd-Frank Act, those who provide original information resulting in a successful action where the U.S. Securities and Exchange Commission recovers at least $1 million may be entitled to 10-30% of that amount.

This week, the SEC announced that the first whistleblower to be awarded under the agency’s program will get another $150,000 after the regulator collected more money in the case. That ups the whistleblower’s award to $200,000 for helping to stop a multimillion-dollar fraud by providing significant data and documents. The total amount is 30% of what has been collected.

Shepherd Smith Edwards and Kantas, LTD LLP is a securities law firm that helps institutional investors and high net worth investors recoup their fraud losses.

Lawson v. FMR LLC= (PDF)

Sarbanes Oxley Act of 2002 (PDF)

SEC Announces Additional $150,000 Payment to Recipient of First Whistleblower Award, SEC, April 4, 2014

JPMorgan whistleblower gets $63.9 million in mortgage fraud deal, Reuters, March 7, 2014

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