Judge Won’t Enforce Whistle-blower Ruling

David Welch, the first Sarbanes-Oxley whistle-blower, remains in legal limbo on technicalities.

The first worker to win protection as a whistle-blower under the Sarbanes-Oxley Act suffered another setback in his drawn-out case when a U.S. district judge decided not to enforce a Department of Labor ruling ordering a Virginia bank to reinstate him, according to the Associated Press.

Whistle-blower David Welch, the former chief financial officer of Cardinal Bankshares, had filed a complaint in the district court in Roanoke, Virginia, to force the bank to comply with an earlier order of reinstatement. However, Judge Glen Conrad said he did not have the authority to enforce the ruling by the DoL’s administrative review board since it was a preliminary action, according to the wire service. Welch’s lawyer said the ruling could be appealed to the 4th U.S. Circuit Court of Appeals.

Welch claims he was fired from Cardinal after he raised questions about the bank’s accounting policies and internal controls, and subsequently refused to certify its financial results. The bank, based in Floyd, Virginia, argued that Welch was suspended and later discharged solely because he refused to meet with Cardinal attorney Douglas Densmore, of law firm Flippin Densmore, and Michael Larrowe, an accountant whose firm was Cardinal’s external auditor, without a personal attorney.

Welch’s case seems to be caught in a perpetual game of legal ping pong. In 2004, two years after he was fired, Cardinal appealed a “recommended decision and order” by DoL Administrative Law Judge Stephen Purcell to reinstate Welch as CFO and award him back pay. The bank’s appeal was denied in June by DoL’s administrative review board.

Nevertheless, the bank refused to comply with the DoL reinstatement order, because, according to Cardinal’s outside counsel Laura Effel, the original “recommendation” by Purcell to reinstate Welch was not a final order as defined by the Labor Department. Therefore, the bank would wait and see whether the DoL or Welch would take action against the company in U.S. District Court in Roanoke.

In July, Welch’s case was slightly advanced by a DoL motion to intervene that included a 13-page memorandum in support of his application for reinstatement. The support from DoL did not seem to make a difference to the Roanoke court, however, as the ball is back in Welch’s court to appeal.

Welch, a corporate-finance veteran, has not held a permanent job since being fired from Cardinal in October 2002. Many legal experts and companies are watching this case, deeming it a litmus test for the enforceability of the whistle-blower provision of the Sarbanes-Oxley Act.

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