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Financial Fraud Law

Whistleblowers Gain Broad Protection in New US Supreme Court Ruling

 The U.S. Supreme Court has ruled that a provision of the Sarbanes-Oxley Act of 2002 (“SOX”) that protects whistleblowers protects not only whistleblowers employed by a public company but also employees of privately-held contractors and sub-contractors – for example, investment advisers, law firms, and accounting firms – who perform work for the public company.

Justice Ginsburg, writing for the Court, explained that Congress enacted SOX to safeguard investors in public companies and restore trust in the financial markets following the collapse of Enron Corporation. A provision of SOX, 18 U.S.C. §1514A, protects whistleblowers, stating:

No [public] company ..., or any officer, employee, contractor, subcontractor, or agent of such company, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of [whistleblowing or other protected activity].

In Lawson v. FMR LLC, No. 12–3 (S.Ct. March 4, 2014), the Court considered the definition of the protected class. It concluded that §1514A shields not only those employed by the public company itself, but also employees of privately held contractors and subcontractors.

The Court reasoned that, based on the text of §1514A, the “mischief to which Congress was responding,” and earlier legislation Congress drew upon, the provision shelters employees of private contractors and subcontractors, just as it shelters employees of the public company served by the contractors and subcontractors.

Chief Justice Roberts and Justices Breyer and Kagan joined Justice Ginsburg’s opinion; Justices Scalia and Thomas joined in principal part. Justice Scalia filed an opinion concurring in principal part and concurring in the judgment, in which Justice Thomas joined. Justice Sotomayor filed a dissenting opinion, in which Justices Kennedy and Alito joined.

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