Friday, March 19, 2010

Both House and Senate Reform Bills Would Close Sarbanes-Oxley Whistleblower Loophole

The revised draft financial reform legislation being considered in the Senate Banking Committee would close a loophole in Sarbanes-Oxley Act whistleblower protection by including any subsidiary or affiliate of a company whose financial information is included in the consolidated financial statements of the company. See Section 929A. The provision in the Senate bill is identical to a provision in the reform legislation the House passed on Dec. 11, 2009. See Section 7607. Sarbanes-Oxley created federal whistleblower protections for employees when they disclose information about fraudulent activities within their companies. The Act would eliminate a defense now raised in a substantial number of actions brought by whistleblowers and apply the Sarbanes-Oxley whistleblower protections to both companies and their subsidiaries and affiliates. A letter from Senator Patrick Leahy, author of the Sarbanes-Oxley whistleblower statute, to the Department of Labor emphasized that federal whistleblower protection extends to employees of subsidiaries of companies and that the DOL should not interpret the statute to exclude employees working for company subsidiaries.