Employee Survival Guide® - Now it is Easier for Employees to Blow the Whistle Under Sarbanes Oxley Act

Episode Date: February 16, 2024

Discover the seismic shift in whistleblower protections as we trace the footsteps of Trevor Murray, the former UBS employee whose courage has carved a new path in the legal jungle. This episode is a treasure trove of insights for anyone standing at the crossroads of ethical decisions in the workplace, offering a guiding light through the murky waters of corporate fraud and employee rights under the Sarbanes-Oxley Act. With the recent Supreme Court ruling in Murray's favor, whistleblowers now have a fighting chance, needing only to demonstrate that their actions were a contributing factor to adverse employment actions rather than the sole reason.Step into the arena where the scales of justice have tipped in favor of truth, as I dissect the nuances of establishing a solid fraud claim and the pivotal role of employment lawyers in this intricate dance. The conversation goes beyond the headlines, peeling back the layers of legal procedures, the strategic use of documentation, and the ever-important timelines that can make or break a case. As we explore the employer's hefty burden of proof and the impact of whistleblowing on employment termination, you'll emerge armed with the knowledge and confidence to navigate the complexities of workplace law, and perhaps, even change the game. Join me as we tackle the implications of this landmark decision for executives and employees alike, setting the stage for our next episode where we'll continue to unravel the fabric of workplace law.Links in Episode:chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https:/www.supremecourt.gov/opinions/23pdf/22-660_7648.pdfEmployees can file claims by going to the OSHA website www.osha.gov/html/RAmap.html or call OSHA at 1-800-321-OSHA (6742).  For a copy of SOX, the regulations (29 CFR 1980), and other information go to www.osha.gov and click on the link for Whistleblower”. If you enjoyed this episode of the Employee Survival Guide please like us on Facebook, Twitter and LinkedIn. We would really appreciate if you could leave a review of this podcast on your favorite podcast player such as Apple Podcasts. Leaving a review will inform other listeners you found the content on this podcast is important in the area of employment law in the United States. For more information, please contact our employment attorneys at Carey & Associates, P.C. at 203-255-4150, www.capclaw.com.

Hey, it's Mark here and welcome to the next edition of the Employee Survival Guide where I tell you, as always, what your employer does definitely not want you to know about and a lot more. It's Mark here and welcome back to the next episode of the Employee Survival Guide. Today's episode, we're talking about how it's easier for employees to blow the whistle under the Sarbanes-Oxley Act. On February 8, 2024, the U.S. 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. Only show that the whistleblower whistleblowing was the contributing factor, a 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.

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. And 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 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 of 2012. Murray then began his legal escapade by filing a complaint with the Department of Labor. That's how you start your Sarbanes-Oxley cases. And 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. Murray's 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. 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. 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 alone 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 the 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 by preponderance of the evidence, 51% or 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. During 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, affected in any way the decision to terminate Murray's employment. When the court previewed this response to the parties, the UBS indicated it 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 convincing evidence that it would have fired Murray, even if it had not engaged in protected activity.

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. So the case then went to the Second Circuit. The Second Circuit, in summary, had stated that Murray had to prove retaliatory intent and reverse the decision of the jury. That put it up for certiorari to the Supreme Court of the United States, and the Supreme Court came back and said, that's not the case. On February 8th, 2024, the court, by unanimous vote of 9-0, so 9-0 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 U.S.C. 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 U.S. Second Circuit Court of Appeals was reversed and the reasons explained in the decision. The case was remanded to the lower court, in this case, the trial court, for a 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 so you can read it. 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 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 shareholders.

Sorry. So here's how to look for your Sarbanes case when you're in it. Sometimes, well, you're probably going to know it. You're in it because you didn't ask for it. Sometimes, well, you're probably going to know it. You're in it because you didn't ask for it. It just came upon you. 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. to play with the numbers or one recent case I 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 hundred million dollars for improper activities, which affected the public disclosure and their financial

statements. The case that was brought to me at that juncture by this employee 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 a kind of a lawyer's rule, but pled in the particularity. So you got to get names, dates of 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 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. But the long form narrative is very, very important. So when you're in the midst of this,

and your job's on the line, and 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 what you want to be involved with that? And typically what reality happens about 95% of the time is that employers will make a sizable counteroffer to you until the hundreds of thousands of dollars based upon a good case, 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. this, but there are procedures to do this. And so, like Mr. Murray, he basically put forth his claim. 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, in an unusual state of affairs, the Second Circuit got it wrong. They interpreted a statute.

I can tell you that the Second Circuit is kind of a premier federal appeals district court appellate jurisdiction that they don't get these things wrong normally. appellate jurisdiction that they don't get these things wrong normally. Normally, 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 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 appellate judge, made the decision for the panel, the unanimous panel of the Supreme Court, and decided in the favor of Mr. Murray. So 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, as they're 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 on 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 posted on the website.

You can read about it as well. I posted on the website. You can read about it as well. And then I should say this, that pitching employment lawyers to you, when you're dealing confronted with a 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 there's some type of financial gain being made. So you're going to need an employment lawyer to, you know, navigate this process process and i have been giving you the kind of the backbone archetype of the architecture of the the case it's really about your written narrative about what you witnessed and the more detailed that is the employment lawyer is going to help you navigate the the especially the four elements

of course that i read to you, but hone the facts in such a way they become very, very believable. It's not conclusory conjecture. It has to be based on fact. You're using a lot of people's statements against other people's interests, emails, texts, Slack. It's really just one gigantic journal entry in a chronological order that 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 decide something in your favor, which is always the case, you're going to have to file in federal court. And that's when you have to have the employment lawyer as a litigator, like myself, to go into a court in 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.

The specific, the whole entire episode is about the contributing factor element that the employee has to prove versus the employer proving 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. If you like the Employee Survival Guide, I'd really encourage you to leave a review. We try really hard to produce information to you that's informative, that's timely, that you can actually use and solve problems on your own and at your employment. So if you'd like to leave a review anywhere you listen to our podcast, please do so. And leave five stars because anything less than five is really not as good, right?

I'll keep it up. I'll keep the standards up. I'll keep the information flowing at you. If you'd like to send me an email and ask me a question, I'll actually review it and post it on there. You can send it to MCARUY at CAPCLlaw.com. That's capclaw.com.