WIN FOR SECURUTIES FRAUD SOX WHISTLEBLOWERS - Employer of Financial Planner That Complained to Supervisor About Unsuitable Trades and Potential Fraud Violated Sarbanes-Oxley Act by Retaliatory Termination
4th June 2015
On May 28, 2015, the Sixth Circuit Court of Appeals affirmed a jury’s verdict that U.S. Bancorp Investments Inc. (“USBII”) violated the Sarbanes-Oxley Act when it disciplined and fired in retaliation a certified financial planner for his complaint about fraud perpetrated on a USBII customer in violation of the Sarbanes–Oxley Act (“SOX”).
Enacted in 2002 in the wake of the Enron Corp. scandal, Sarbanes-Oxley makes it illegal for companies to retaliate against an employee who reports suspected fraud.
Michael Rhinehimer, who claimed he was fired in 2011 after sending an email to his supervisor alerting him of unsuitable trades made by a co-worker while he was on disability leave. The trades in question, according to Rhinehimer, “destroy[ed]” his elderly clients’ estate plan and also asserted that the trades should never have been placed or approved.
Rhinehimer was given a written warning by his manager for opposing the unsuitable trades because Rhinehimer’s complaint prompted a Financial Industry Regulatory Authority (“FINRA”) investigation. In addition, Rhinehimer was also told that his career at USBII was over and that if he were to sue the bank, his career in the city would be over.
Rhinehimer was then placed on a performance improvement plan requiring him to increase his revenue to $40,000 per month, and shortly after placing him on the plan, USBII terminated his employment.
USBII said it did not violate SOX's whistleblower protections because Rhinehimer could not show that he had an objectively reasonable belief that the trades made by his colleague constituted unsuitability fraud.
The 6th Circuit Court of Appeals held that the information available to Rhinehimer when he lodged his complaints was more than sufficient to allow him to “reasonably believe” his colleague knew the trades were not in the client’s best interest and constituted unsuitability fraud. Moreover, according to the Court, even if the trades in question were above board, SOX still protects employees who reasonably but mistakenly believe that the conduct at issue constitutes a violation of relevant law.
“When USBII retaliated against him for reporting that information, it therefore violated Sarbanes–Oxley’s whistleblower protections,” Circuit Judge Eric L. Clay wrote on behalf of the panel. Judge Clay further stated that “we adopt the emerging rule that the employee’s reasonable belief is a simple factual question requiring no subset of findings that the employee had a justifiable belief as to each of the legally-defined elements of the suspected fraud.”
The 6th Circuit’s ruling in this case is an important development for corporate whistleblower rights and protections in that it restores the original intent of SOX whistleblower protection. A whistleblower's reasonable belief is now assessed in a manner consistent with similar anti-retaliation statutes (i.e., the employee must subjectively believe that there is a violation, and the belief must be objectively reasonable).