Sarbox Section 806: The Whistleblower Provision In Sarbanes-Oxley

Sarbanes-Oxley Whistleblower Protection (Paramount Guide to Section 806)

The Sarbanes-Oxley (SOX Act) was enacted to eliminate corporate fraud.

Click here for our Definitive Summary to the Sarbanes Oxley Act.

One of Sarbanes-Oxley’s most important provisions enacted special rules to protect employees who disclosed corporate fraud - Section 806.

Below is a complete rundown of Section 806. Reviewing just the 5 points below you will have an full grasp of SOX 806 and the SOX whistleblower protections the act provides.

employer retaliation against whistleblowers

 

 

Have Knowledge of Fraud?

Keep reading to learn how Sarbox helps protect employees who blow the whistle on corporate fraud.

 

"Sarbox is responsible for over $150 million in restitution and fines, over $15 million in bounty payments to whistleblowers..."

Why protecting Whistleblowers is important.

During the Congressional hearings following the Enron and WorldCom collapses it became clear employees knew of misleading financial reporting and accounting practices within these companies. Fear of retaliation, employer pressure, or being blackballed in their industry likely prevented their coming forward.

How it happens? (Corporate Code of Silence)

The Corporate Code of Silence is a condition within a company when employees are discouraged from reporting fraudulent behavior to the proper authorities.

Employees with knowledge of executive's fraudulent behavior would be threatened with termination and face discrimination by coming forward.

Congress sought a way to empower these whistleblowers in order to avoid future corporate fraud. This was accomplished by the SOX Act under Section 806.

Protection for Whistleblowers (Section 806)

corporate finance regulation

Provisions of SOX Section 806

  • Section 806 of Sarbanes-Oxley provides protections for whistleblower employees that disclose corporate fraud. The Act authorized the Department of Labor to protect whistleblowers from employer retaliation. SOX also authorized the Department of Justice to bring criminal charges against those responsible for the retaliation. This makes employer retaliation illegal.

Types of Employer / Corporate Retaliation

  • Retaliatory conduct prosecutable under SOX includes any discrimination against an employee whistleblower. Termination, demotion, transferring, harassing, suspending and reduction in pay are all actionable offenses. Revealing the employee as a whistleblower is also a violation.

Who is protected under Section 806?

  • Any employee, or employee of a contractor or sub-contractor employee of a publicly traded company that reports what they believe is fraud.
  • These employees should report what they reasonably believe is fraudulent behavior to the FBI or DOL. Whistleblowers should contact a qualified attorney before considering any action.

Whistleblower protected conduct and activity.

  • Section 806 provides protection for employees who report what they reasonably believe is:
    • Corporate Fraud including Shareholder fraud, securities fraud, bank fraud, wire fraud or mail fraud
    • Violations of SEC rules and/or regulations that govern corporate financial reporting.

Whistleblower retaliation penalties for executives and employers were also enacted.

  • “Whoever knowingly, with the intent to retaliate, takes any action harmful to any person, including interference with the lawful employment or livelihood of any person, for providing to a law enforcement officer any truthful information relating to the commission or possible commission of any Federal offense, shall be fined under this title or imprisoned not more than 10 years, or both.’’ (Title 11: Section 1107)
  • This means for any retaliation by an employer (termination, demotion, discrimination, etc.) against an employee who discloses fraudulent behavior can face up to 10 years in federal prison.
SOX Whistleblower Representation

Reporting, Proving and Settlements from the SOX Act (Legal Representation)


Reporting Violations.

  • There is limited time for Whistleblowers to initiate a SOX claim of employer retaliation. Whistleblowers have 90 days (Section 1514.b.2.D) to disclose acts they “reasonably believe constitute a violation”.
  • Whistleblowers should report directly to the Department of Labor or the Department of Justice (FBI). It is highly recommended to seek legal counsel from a qualified attorney before taking this action.

Proving a Retaliation Case

  • Four things an employee whistleblower will need to prove in a retaliation case.
    • The whistleblower was involved in a protected disclosure activity
    • The employer knew of this protected activity
    • The whistleblower was subject to some type of discrimination
    • The protected disclosure was a contributing factor in this discrimination

Employer’s defense

  • Employer’s will defend their actions by stating that in the normal course of events the action taken against the whistleblower would have occurred regardless of disclosures the employee made.

Settlements provided under the SOX Act

  • Compensatory damages for Retaliation
    • Reinstatement with the same seniority status that the employee would have had, but for the discrimination.
    • The amount of back pay and lost wages, with interest.
    • Compensation for any special damages sustained as a result of the discrimination, including litigation costs, expert witness fees, and reasonable attorney fees.
    • Continued civil action can be taken against corporations for pain and suffering, emotional distress and reputational harm. There is no monetary limit on whistleblower retaliation settlements. Plaintiffs can receive multi-million dollar settlements if properly represented in a SOX Case.
financial legal bounty

Securities & Exchange Commission Reward Program (Do the Right Thing)

What is the SEC Reward Program? The SEC knows reporting wrongdoing can be difficult in the corporate environment. The legal settlements and potential job difficulties may not be enough to entice whistleblowers to come forward. With this in mind the SEC offers rewards for people who want to do the right thing and prevent fraud.

Issuing of Rewards to Whistleblowers (a.k.a. Relator) The program rewards those whistleblower employees that provide unique and original information. This information has to provide the SEC with enforceable actions greater than $1 million dollars. This action will include penalties, disgorgement and interest. Whistleblowers can receive between 10-30 percent of the money collected.

The pursuit of Whistleblower or 'relator' rewards is a process the should be undertaken with proper legal representation. An experience “qui tam” or SOX Lawyer should be consulted so you understand your legal options.

 

Need a Lawyer?


FILL OUT THE FORM BELOW
TO REQUEST YOUR CASE REVIEW

    External Resources

    Whistleblower News