Sarbanes-Oxley Whistleblower Provision Not Limited to Allegations of Fraud Against Shareholders

The whistleblower provision of the Sarbanes Oxley Act, codified in Section 806, is not limited to allegations of fraud against shareholders or to conduct that is otherwise adverse to the interests of investors, contended the SEC in an amicus brief submitted to the DOL Administrative Review Board. There is nothing in the language of Section 806, said the SEC, indicating that the listed categories of laws and regulations to which an employee’s communication must relate, such as wire fraud, mail fraud and violations of SEC regulations, that is qualified by a requirement that it must be related to fraud against shareholders or of a type that would be adverse to investors’ interests. Sylvester v. Parexel International LLC, ARB Case No. 07-123.

The SEC also said that the whistleblower should not have to establish that the protected activity definitively and specifically relates to a violation of one or more of the laws listed in Section 806. Although acknowledging that the Administrative Review Board and most courts require that an employee’s communications definitively and specifically relate to one or more of the federal laws or regulations specified in Section 806, the SEC pointed out that this qualification is not required. If the requirement should be adopted, continued the Commission, it should be interpreted consistent with the remedial purpose of Section 806.

Although the SEC does not favor the use of the phrase “definitively and specifically,” calling it overly narrow and strict, the Commission agrees with the courts that a certain degree of specificity is required. General inquiries are not enough.

The term “definitively and specifically” appears to have originated in a whistleblower case brought under the Energy Reorganization Act. There, the US Sixth Circuit Court of Appeals said that to constitute a protected safety report, an employee’s acts must implicate safety definitively and specifically. Am. Nuclear Res., Inc. v. U.S. Dep’t of Labor, 134 F.3d 1292 (6th Cir. 1998). But the Sixth Circuit also emphasized that whistleblower statutes should be interpreted broadly.

According to amicus, the courts that have adopted the definitively and specifically requirement in applying Section 806 have generally interpreted it in a manner consistent with the whistleblower provision’s remedial purpose. Section 806 requires only that the employee’s communication regard conduct which the employee reasonably believes constitutes a violation of one of the enumerated federal laws or SEC regulations. The SEC does not believe that the qualification that the communication must relate definitively and specifically to one of those laws should be added.

Although the courts generally have accepted the qualification, said the SEC, they have given it an appropriate interpretation consistent with the remedial purposes of Section 806. The SEC agrees with courts that have focused on the degree to which the communication can be reasonably understood by the employer to implicate a possible violation of one of the enumerated laws. As the Fourth Circuit explained in Welch v. Chao, 536 F.3d 269, 275 (4th Cir. 2008), this requirement ensures that an employee’s communications to his or her employer are factually specific and identify the specific conduct that the employee believes to be illegal. Beyond that, the SEC does not believe that the employee’s communication needs to include a detailed analysis of the alleged violation in order to be protected activity.