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From Securities Regulation Daily, October 9, 2013

SIFMA urges Supreme Court to confine Sarbanes-Oxley whistleblower protections to public companies

By Jim Hamilton, J.D., LL.M.

In an amicus brief filed with the U.S. Supreme Court in a Sarbanes-Oxley Act whistleblower case, the Securities Industry and Financial Markets Association argued that Section 806’s protections from retaliation against whistleblowers extend only to the employees of public companies, and do not reach the employees of their contractors, subcontractors, or agents. SIFMA contended that Congress deliberately placed the burdens attendant to Section 806 litigation on the shoulders of public companies and purposely stopped short of imposing the same burdens on private companies (Lawson v. FMR LLC, October 7, 2013).

The Court granted certiorari on May 20, 2013, to review a First Circuit panel holding that only the employees of defined public companies are covered by the whistleblower provisions. Citing principles of statutory construction, the appeals panel concluded that Section 806 of Sarbanes-Oxley limits its whistleblower protections to employees of public companies. If Congress intended a broader meaning, said the panel, it could amend the statute. Oral argument in the case is set for November 12, 2013.

In an earlier joint amicus brief, the SEC and Department of Labor urged the Supreme Court to rule that employees of contractors and subcontractors of public companies are protected from retaliation under the whistleblower provisions of the Sarbanes-Oxley Act when they report fraud or a violation of SEC rules.

Sarbanes-Oxley whistleblower provision. SIFMA argued that the construction of Section 806 advocated by the petitioners and the Government before the Court would dramatically expand Section 806 liability far beyond the outer boundaries established by Congress. Even the most conscientious public and private companies would suddenly be exposed to a new and unjustified wave of civil litigation that does nothing to advance the shareholder protection goals underlying Sarbanes-Oxley. The consequences for SIFMA’s members would be particularly severe due to their many variegated and unique relationships with public companies, said SIFMA.

Section 806 of Sarbanes-Oxley provides that no public company or any officer, employee, contractor, subcontractor, or agent of such public company may retaliate against an employee of such public company for engaging in protected whistleblowing activity. The language is clear, emphasized SIFMA, that Section 806’s protections against retaliation extend only to the employees of those public companies, and do not reach the employees of their contractors, subcontractors, or agents.

Thus, continued SIFMA, Congress did not act willy-nilly in creating this new and entirely unprecedented whistleblower program. Rather, it fashioned a discrete remedy carefully tailored to a particular problem. A vast expansive construction of Section 806 would overturn the delicate balance struck by Congress more than a decade earlier while doing nothing to advance the shareholder protection goals animating the Act.

The case is No. 12-3.

MainStory: TopStory SarbanesOxleyAct

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