Speaker 1: 0:20

It's Mark here and welcome back to the next episode of the Employees Survival Guide. T oday's episode of talking about how it's easier for employees to blow the whistle under the Sarbanes-Oxley Act. On February 8, 2024, the US Supreme Court issued a very favorable decision for Sarbanes-Oxley whistleblowing employees at public companies, overriding the Second Circuit decision in New York. The decision holds that employees do not have to prove retaliatory intent to make a claim. We show that the whistleblowing was the contributing factor of much lower standard, much lower burden, while the employer must show by clear and convincing evidence a much higher standard that it would have taken the same action otherwise.

Speaker 1: 1:03

The case was brought by a fellow named Trevor Murray. He was employed as a research strategist at securities firm UBS within the firm's commercial mortgage-backed securities business, cmbs Trading Desk. In that role, murray was responsible for reporting on CMBS markets to current and future UBS customers. Securities and Exchange Commission rules and regulations required him to certify that his reports were produced independently and accurately and accurately reflected his own views. Murray contends that, despite this requirement of independence, two leaders of the CMBS Trading Desk improperly pressured him to skew his reports to be more supportive of their business strategies, even instructing Murray to clear his research articles with the desk before publishing them. Murray reported the conduct to his direct supervisor, mr Michael Schumacher, in December of 2011 and again in January 2012, asserting that it was unethical and illegal. Schumacher expressed sympathy for Murray's situation, but emphasized that it was very important that Murray not alienate his internal client, the Trading Desk. When Murray later informed Schumacher that the situation with the Trading Desk was bad and getting worse, as he was being left out of meetings and subject to constant efforts to skew his research, schumacher told him he should just write what the business line wanted. Shortly after the exchange, and despite having given Murray a very strong performance review, just a couple months before, schumacher emailed his own supervisor and recommended that Murray be removed from UBS headcount, aka being fired. Schumacher also recommended in the alternative that if CMBS Trading Desk wanted him, murray could be transferred to a desk analyst position where he would not have SEC certification responsibilities. The Trading Desk obviously declined to accept Murray as a transfer and UBS fired him in February 2012.

Speaker 1: 3:01

Murray then began his legal escapade by filing a complaint with the Department of Labor. That's how you start your Sarbanes-Oxley cases. I'll talk about that in a second. He alleged that his termination violated Section 1514A of the Sarbanes-Oxley Act because he was fired in response to an internal reporting about fraud on shareholders. When the agency did not issue a final decision on his complaint within 180 days, murray filed an action in federal court. His claim went to trial. Ubs moved for judgment as a matter of law, arguing among other things that Murray had failed to produce any evidence that Schumacher possessed any sort of retaliatory animus towards him. The district court denied the motion.

Speaker 1: 3:42

The district court instructed the jury that in order to prove his Section 1514A claim, murray needed to establish four elements, and this is what you need to prove when you're going about your Sarbanes-Oxley investigation of your own case. Number one that he engaged in whistleblowing activity protected by Sarbanes-Oxley, and I'll talk about what those are in a second. Two that the UBS knew that he engaged in the protected activity. Usually you can do that by email or discussions you have verbally with your supervisors. Three that he suffered an adverse employment action. In this case he was fired. There are other actions the employer can take, such as demotions and reduced wages or failure to pay bonuses.

Speaker 1: 4:22

Number four that his protected activity was a contributing factor in the termination of his employment. That is the sole contention the Supreme Court took up Later on I'll get into that in a second. The last element the district court further instructed the jury quote for protected activity to be a contributing factor it must have either a loan or in combination with other factors tended to affect in any way UBS's decision to terminate his employment. The court explained that Murray was quote not required to prove that his protected activity was a primary motivating factor in his termination or that UBS articulated reason for his termination was a pretext, which is a common burden shifting that you see in employment discrimination cases. If Murray proved each of the four elements of by-proponents of the evidence 51% of better the district court instructed the burden would then shift to UBS to quote demonstrate by clear and convincing evidence that it would have terminated Murray's employment even if he had not engaged in protected activity. And I'll tell you that the clear and convincing evidence standard is a much, much higher and more difficult burden. So that's why it becomes easier for employees to blow the whistle.

Speaker 1: 5:32

During the deliberations the jury asked for clarification regarding the contributing factor instruction. The court responded the jury should consider whether anyone with any knowledge of Murray's protected activity because of the protected activity affecting in any way the decision to terminate Murray's employment. When the court previewed this response, the parties to the parties the UBS indicated was comfortable with that formulation of the jury instruction, which has to happen before the jury is impaneled to finally decide the situation. The jury found that Murray had established a Section 1514A claim and that UBS had failed to prove by clear and convincing evidence that it would have fired Murray even if it had not engaged in protected activity. In that regard, ubs had argued to the jury and this is pretty onerous, just outrageous on their part that the market-wide difficulties for the firm and also a $2 billion trading loss on a trading desk in London had caused Murray's termination, job elimination. They called it. The jury also issued an advisory verdict on damages, recommending that Murray received nearly $1 million.

Speaker 1: 6:39

So the case then went to the Second Circuit. Second Circuit, in summary, had stated that the that Murray had to approve retaliatory intent and reverse the decision of the jury. That put it up for Sosherari to the Supreme Court of the United States. And the Supreme Court came back and said that's not the case and on February 8th 2024, the court by unanimous vote of nine zero. So nine zero is indicative of a clear precedent setting decision held in favor of Murray and all other employees who want to blow the whistle under Sarbanes-Oxley. And they said, quote a whistleblower who invokes 18 USC section 1514A bears the burden to prove that his protected activity was a contributing factor in the unfavorable personnel action alleged in the complaint. End quote but he is not required to make some further showing that his employer acted with retaliatory intent. The judgment of the US Second Circuit Court of Appeals was reversed and the reasons explained in the decision. The cases was remanded to the lower court, in this case the trial court, for further decision. Basically, they were to enforce what the jury's verdict was, and I will put the actual case decision from the Supreme Court in the show notes. She can read it.

Speaker 1: 7:59

And then I just want to just tell you what is covered by SOX, the Sarbanes-Oxley, and how to file a claim, much like Mr Murray did. An employer cannot discharge or otherwise retaliate against an employee because he or she provided information or caused information to be provided or assisted in an investigation by a federal regulatory or law enforcement agency or, more importantly, participated in an internal company investigation, which I'll get to in a second, regarding alleged mail fraud, wire fraud, bank fraud, securities fraud, violations of SEC rules and regulations or violation of federal laws relating to fraud against whistleblowers or against Sherilders, sorry. So here's how to look for your Sarbanes case when you're in it. Sometimes well, you're probably gonna know it you're in it because you didn't ask for it, it just came upon you.

Speaker 1: 8:46

Typically, I see cases where you have a moderate, mid-tier level executive who is jostling around trying to do their job performance, their job task, and there's other executives who are beginning to play with the numbers or a well-in-recent case that was involved with it was a public company and the SEC had dinged the company for the tune of I don't know a couple of $100 million for improper activities which affected the public disclosure and their financial statements. The case that was brought to me at that junction by this employee was had witnessed the same activity that the SEC had fined the company on and found them had violated the laws and the company, as reported by my client, had done it again. So, without naming names, this employee had the ability to recount in very factual manner, and most employees I see they go to a very lengthy degree and I encourage you, as you know, to put forth in a detailed narrative all of the specifics that occur, because you're demonstrating a fraud claim and fraud has to be pled this is kind of a lawyer's rule, but pled in the particularity. So you got to get names, dates to things occurred, the statements that are being made, and you want to put it in long form, chronological narrative. That's the best way for you to demonstrate to the company that you're blowing the whistle and gain protection. But it'll also, if you want to go further and file a claim because you're notably unsuccessful in your settlement demand negotiations with the employer, you've decided that you really have no way out of this situation other than going forward. You file with the Department of Labor, osha, which is the state agency or the federal agency arm that controls this statute, and you also can file with the SEC as well, and they have a certain whistleblowing procedure for there as well.

Speaker 1: 10:47

But the long form narrative is very, very important. So when you're in the mix of this and your job's on the line, maybe you're unable to negotiate anything and you have no way out other than blowing the whistle publicly. That's the hard part of these cases Everyone should understand is you know how far do you go and you want to be involved with that in. Typically, what in reality happens about 95% of the time, is that employers will make a sizable counteroffer to you until 100,000 of the dollars, based upon a good case and because there's a larger issue at play. You need to understand that the damage potential to the company is in the tune of millions of dollars. So it's pennies in a bucket to pay you off. It's a lot of money to you, of course, but you have to figure out what's of concern to you and your own expectations and your own goals and your own personal life, how much you want to get involved with this. But there are procedures to do this and so, like Mr Murray, he basically put forth his claim.

Speaker 1: 11:48

The agency itself unfortunately didn't do anything with it, not surprisingly, and he turned to the courts to effectuate his Sarbanes-Oxley claim and it was successful. He had to be patient. He had to go through the Second Circuit after a jury verdict in his favor. That's painful. I can tell you that, having gone to the Second Circuit many times. Nonetheless the unusual state of affairs, the Second Circuit got it wrong. They interpreted a statute and I can tell you that Second Circuit is kind of a premier federal appeals district court jurisdiction, that they don't get these things wrong normally. Normally they basically they're leading the area of law in terms of establishing case law. So pretty outstanding case from the Supreme Court to come back and say the Second Circuit was wrong in that regard, because it was. Typically what happens is the Supreme Court will decide a split in authority and there was a split between, I think, the fifth and eleventh circuits here in the second. So they did so. Judge Sotomayor was actually the former Second Circuit Pellet judge made the decision for the panel, the unanimous panel of the Supreme Court, and decided in the favor of Mr Murray.

Speaker 1: 13:02

Employees who experience a firing or a layoff or a blacklisting, demotion or discipline or intimidation may file a Sarbanes-Oxley complaint with the Department of Labor, which is the Occupational Safety Hazard Administration OSHA it's called. Employees have 180 days to file the agency claim or risk waiver of that claim. That's very important, so make sure you make a timely complaint. If you're filing on your own, you can do that right in the website, and employees can file claims by going to the OSHA website. I'll put those links on the show notes for you as well. There's also a blog post, a post on the website. You can read about this as well, and then I should say this that you know pitching employment lawyers to you, it's when you're dealing with SOX claims and you're dealing with fraud at that level with public companies. Typically the employees we encounter are mid to higher level tier executives who are confronted with this situation, not really finding a way out, and they're then, you know, because they don't, you know, want to toe the line with the corrupted individuals who are making this happen, typically of companies who stock is suppressed or the sum type of financial gain be made.

Speaker 1: 14:21

So you're going to need an employment lawyer to you know, navigate this process. And I have been giving you the kind of the backbone archetype of the architecture of the case. It's really that you're written narrative about what you witnessed and the more detailed that is. The employment lawyer is going to help you navigate the, especially the four elements, of course, that I read to you earlier. But hone the facts in such a way they become very, very believable. It's not conclusory conjecture, it has to be based upon fact.

Speaker 1: 14:50

You're using a lot of people's statements against other people's interests emails, text, slack it's really just one gigantic journal entry in a chronological order. The employment lawyer will help and then the employment lawyer will help you, obviously, file the claim, but as you approach the agency's lack of wherewithal, to you know, decide something in your favor, which is always the case you're going to have to file a federal court, and then it's when you have to have the employment lawyers, a litigator like myself, to go into a court, any jurisdiction in the country, to do this. So that's really the essence of how it's now easier for whistleblowers under the Sarbanes-Oxley Act to file cases and be successful, because the burden has basically shifted to the employer and there's a tremendous amount of leverage for the employee. To you know, if you want to negotiate a severance settlement with the employer, it's now even better to do that because of the change in the circumstance of the burden.

Speaker 1: 15:48

The specific, the whole entire episode is about the contributing factor element that the employee has to prove, versus the employer approving, that they would have done it by clear, convincing evidence. We've gotten rid of this guy or this individual. So there you have it. Until next time I will bring you another episode. Stay tuned and have a good day.