Whistle-Blower Woes

Many companies think the whistle-blower provisions of Sarbanes-Oxley will spark nuisance suits by disgruntled employees. The truth is far more complex.

Other attorneys say that, hypothetically, such a case isn’t impossible for a CFO to win. “The question is really whether he exhausted his responsibilities of due diligence before he signed, and took action on anything that didn’t pass the smell test,” says Jeff Lerer, an attorney with Foley Hoag in Boston. Provided Bourgart can show why he couldn’t have known the truth at the time of the filing, he’s probably off the hook, Lerer speculates, at least for criminal penalties. —A.N.

Blowing the Whistle: Six Recent Cases

Whistle-blower What happened Status
James Bingham, former assistant treasurer;
In 2000, Bingham alleged that Xerox fired him for drawing management’s attention to accounting and financial-reporting errors. He assisted the SEC in a civil case that Xerox later settled by paying a $10 million fine and restating four years’ worth of financials. The company also covered nearly $20 million fines against executives charged with fraud. Wrongful-dismissal suit pending.
Nina Aversano, former president of North America sales to service providers;
Lucent Technologies
Aversano filed suit against Lucent in December 2000, alleging that the company’s then-CEO fired her after she called his sales targets unreachable and told him he was misleading investors with aggressive forecasts. Suit was settled in January.
Tax attorney Robert Schmidt and tax manager Thomas Walsh;
Levi Strauss
The pair claim that Levi Strauss fired them in December 2002 after they refused to withhold financial informatino from auditor KPMG. They brought suit in April 2003, accusing Levi of filing false financial statements since 1997. They have also called for whistle-blower protection. Levi countersued in May, alleging that the pair stole company documents and accusing them of defemation.
William J. Murray, a former senior vice president of capital management;
Murray filed suit in April under Section 806 of Sarbanes-Oxley. He alleges that Dallas-based energy company TXU fired him for questioning what he saw as unorthodox accounting and arguing that the company did not have the required 180 days to review the claim before Murray took it to federal court. A federal judge in Dallas denied the request. Trial date expected soon.
Anthony Gonzalez, chairman of Colonial’s local advisory board;
Colonial Bank
Gonzalez approached the president and the CEO of Colonial after he learned they had started a side business together that competed with the company. When the pair continued the business despite his warning, Gonzalez spoke with the CEO and CFO of Colonial’s parent company in Alabama. He alleges he was fired the following day. Gonzalez filed suit under Sarbanes-Oxley in July
David Welch, former CFO;
Cardinal Bankshares
In court in August, Welch’s attorney invoked the Sarbanes-Oxley whistle-blower provision, arguing that Cardinal fired his client for raising concerns about accounting and refusing to certify the company’s financial reports. According to Cardinal, Welch was fired after he was asked to discuss his allegations with the company’s lawyer and one of its external auditors but refused to talk without his own lawyer present. Decision pending.
Chart compiled by Kate O’Sullivan


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