Two internal auditors at Boeing have learned a painful lesson in how not to blow the whistle over concerns about shoddy compliance with Sarbanes-Oxley.

The 9th Circuit Court of Appeals rejected claims by Matthew Neumann and Nicholas Tides that they should be protected as whistleblowers under Sarbanes-Oxley for airing their gripes over the company's handling of internal control concerns. That's because the two internal auditors aired their concerns not through corporate or regulatory channels as protected under the law, but instead through the media.

Neumann and Tides began working in internal audit at Boeing in January 2007 under conditions they described described as tense. The company feared its external audit firm, Deloitte & Touche, would find a material weakness in internal control over financial reporting. The two told the court that managers created a hostile work environment and pressured internal auditors to issue positive findings.

The auditors said they began expressing their concerns over potential Sarbanes-Oxley violations to supervisors in February 2007, especially their discomfort with the authority given to PricewaterhouseCoopers, which was hired to support the internal audit function. Neumann and Tides believed PwC auditors were too deep in the design and audit of controls, and they believed the software system for recording audit results wasn't adequately secure.

In April and May, Neumann and Tides communicated with a Seattle news reporter, which led to a news article in July asserting the company threatened employees, manipulated audit results, and was susceptible to theft and fraud. Boeing fired Neumann and Tides, determining they created an “unacceptable liability” for the company by violating communications policies.

The 9th Circuit said whistleblowers under Sarbanes-Oxley are protected when they disclose certain types of information to three categories of recipients specifically named in the law – namely corporate supervisors, federal regulatory and law enforcement agencies, and Congress. “Leaks to the media are not protected,” said Circuit Judge Barry Silverman in authoring the opinion.

Neumann and Tides argued their communication with the media should be protected because it was, in effect, a pathway for information to be provided to members of Congress or other law enforcement or regulatory agencies. “We decline to adopt such a boundless interpretation of the statute,” Silverman wrote. “If Congress wanted to protect reports to the media under (Sarbanes-Oxley), it could have listed the media as one of the entities to which protected reports may be made. … When Congress wants to protect the disclosure of any information to any entity, it knows how to do so.”