JPMorgan Chase is defending a claim that it violated Section 806 of the Sarbanes-Oxley Act, which protects individuals who report conduct that might constitute a violation of securities laws or rules of the Securities and Exchange Commission.
The giant financial services firm received a letter in May from the Occupational Safety and Health Administration—which enforces SOX 806—notifying the company that a preliminary investigation found reasonable cause to believe that JPMorgan Chase violated Sarbanes-Oxley’s whistleblower provision in its treatment of compliance officer Peter Sivere. A copy of that letter—which was sent by OSHA’s New York office to an attorney for JPMorgan Chase—was anonymously faxed to Compliance Week.
A spokeswoman for OSHA said last week that the agency could not comment on the Sivere investigation because it is still pending. JPMorgan Chase also declined to comment on the matter.
Compliance Officer Demoted, Then Sacked
The complaint against JPMorgan Chase was filed on July 28, 2004, by Sivere, who had worked as a compliance officer and team leader of an e-surveillance group, which monitored emails.
The problems for Sivere allegedly began in September 2003, when the SEC sent a letter to JPMorgan Chase and other firms requesting information about market-timing and late trading. Sivere supervised four lawyers who had been hired by JPMorgan Chase to work on reviewing the company’s email data. In November 2003, Sivere claims, he and the four attorneys working on the project were abruptly removed after discovering an email that incriminated JPMorgan Chase in the market-timing and late trading scandals that were under investigation by the Commission.
Several months later, after returning from paternity and family medical leave, Sivere allegedly met with his supervisor and raised concerns that JPMorgan Chase was withholding incriminating documents from the SEC. Less than three weeks later, Sivere claims, he was given the choice of either signing a release and leaving the firm or remaining with the company under a final written warning for poor work performance. Sivere chose to remain with the firm, allegedly because JPMorgan Chase would not provide him with documentation that would allow him to work in the securities industry in the future.
On June 4, 2004, Sivere complained that he was being retaliated against for assisting in the SEC investigation and was placed on administrative leave while the claim was investigated by JPMorgan Chase. While on administrative leave, Sivere communicated with the SEC and sent the Commission emails that he felt showed violations of securities laws.
Sivere returned to JPMorgan Chase on July 19 to learn that he had been demoted. He was no longer a team leader and was now to report to the new team leader, who had previously been Sivere’s subordinate. Five days after learning of his demotion, Sivere filed his OSHA complaint. On Oct. 7, Sivere was terminated for “improper use of the firm’s email.”
In informing JPMorgan Chase of its preliminary findings, OSHA said it had “reasonable cause to believe that [Sivere] engaged in activities that are protected under Section 806 of the Sarbanes-Oxley [Act], that [JPMorgan Chase] was aware of those protected activities, that [JPMorgan Chase] took adverse action against [Sivere], and that [Sivere’s] protected activities contributed to the adverse actions taken against him.”
The complaint against JPMorgan Chase next goes before an administrative law judge. After that, the losing party can appeal to the agency’s administrative review board. A federal appeals court can also review the ultimate decision in a SOX whistleblower case.
SOX 806: Majority Of Complaints Fail
To date, the overwhelmingly majority of the 600-plus SOX whistleblower complaints that have been filed with OSHA have been unsuccessful. According to figures provided by the Department of Labor (the parent agency of OSHA), roughly three-quarters of SOX whistleblower complaints that have been filed since Sarbanes-Oxley became law in 2002 have been voluntarily withdrawn or dismissed. A review of those cases shows that a large percentage of the complaints failed because of procedural deficiencies, such as missing the statute of limitations.
Only a handful of SOX whistleblowers who have had their complaints addressed on the merits within the OSHA process have so far prevailed, although a number of cases have resulted in undisclosed settlements. Unlike Sivere, most SOX whistleblower complainants have not received a favorable preliminary finding from OSHA investigators.
One of the few successful whistleblowers was David Welch, CFO of Cardinal Bankshares Corp., a small bank holding company. He was ordered reinstated to his post in February, a decision that is being appealed. (See related article, “SOX Whistleblower Gets His Job Back, Plus Payment, Fees,” in box above, right.)
Another successful whistleblower was David Winhauser, the former controller of Trane, a heating and cooling company. An administrative law judge earlier this year upheld OSHA’s preliminary order that he be reinstated to his position. But Trane’s appeal was dismissed in late August after the parties settled.
Several other alleged whistleblowers have removed their complaints to federal court, but none of those lawsuits have yet gone to trial.
‘A Bad Sign For The Employer’
Robbins
Holly Robbins, a partner with the law firm Faegre & Benson in Minneapolis, tells Compliance Week that the low success rate of SOX whistleblower complaints to date isn’t unusual for employment cases, noting that a similar dynamic can be found with discrimination complaints filed with the Equal Employment Opportunity Commission.
“A lot of times someone gets fired and they’re angry and they may feel that they’re been wronged, but it turns out that the company has legitimate reasons [for the decision],” she says. “Generally, the [SOX whistleblower] claims are lacking in merit and that’s why they are often found [by OSHA] not to have to probable cause.”
Tanenbaum
Jeffrey Tanenbaum, a partner with Nixon Peabody in San Francisco, agrees that the majority of the claims that have been filed thus far have not been strong.
“From the standpoint of an attorney who defends against such claims, I’m not surprised,” he says. “It is not inconsistent with what we’ve experienced with respect to whistleblower claims under other statutory provisions. The majority of claims tend not to be meritorious. There are going to be some [claims] that are very serious and significant but the majority simply won’t be.”
Tanenbaum says he has been surprised that there haven’t been more SOX whisteblower claims filed since the law was enacted. “I think we’re likely to see a growing number of such claims,” he notes. “Although it’s very hard to interpret how you proceed with your claim [or] how to defend, it’s very easy to make a claim—so easy to at least allege a violation that I’m surprised that there have not been more [claims].”
A finding by an OSHA investigator that there is probable cause to believe that SOX has been violated doesn’t necessarily mean that the employee is going to win, but “it certainly is a bad sign for the employer,” Robbins notes. “There has not been a factual or evidentiary hearing yet, but it’s certainly going to weigh very heavily in favor of the charging party and may weigh the charging party in favor of getting a good settlement.”
Tanenbaum concurs that an employee who is armed with a favorable probable cause finding “may indeed have greater leverage with regard to settlement—but it is not necessarily a sign that a case is more meritorious. Investigators make mistakes just like everybody else.”
Robbins says that, in her experience, OSHA has been “very reasonable” in its investigations of SOX whistleblower complaints, although the cases “have been taking a long time to get investigated.” In theory, “these investigations should be done in 60 days, but I don’t think that’s the reality,” says Robbins, noting that “this still is a relatively new statute and they still have all their other work they’re doing.”
For companies hit with a SOX whistleblower complaint, the “main thing is that each charge should be taken very seriously,” says Robbins. “Get your documentation together. An investigation should be done. It’s best to provide solid evidence in your favor. That can go a long way to getting a good result.”
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