The reach of the Sarbanes-Oxley Act of 2002 is not limited to publicly traded companies. The United States Supreme Court has greatly expanded the number of companies that may be subject to whistleblower retaliation claims under SOX, holding recently that privately owned companies that perform services for publicly traded companies (i.e., financial services companies, accounting firms, law firms, etc.) can be sued for taking an adverse employment action against an employee that reports illegal activity by a publicly traded client.
In Lawson v. FMR LLC, the plaintiffs were employees of a company that provided advisory and management services to a publicly traded mutual fund company. The employees had each raised concerns about fraud in the mutual fund's financial reports. One was soon after terminated, and the other claimed she was forced to resign. Both claimed they were retaliated against in violation of SOX. Their employer's initial defense to the claims was that SOX did not apply because it was not a publicly traded company. The Supreme Court rejected this defense, holding that the plaintiffs were protected by SOX because they were employed by a contractor for the publicly traded company.
The Supreme Court failed to define the potentially broad scope of this ruling, which the dissenting Justices remarked could apply to a babysitter who was hired by one of the publicly traded company's employees. Although there remains a strong argument that the complaint of fraud must relate to the interests of the shareholders of the publicly held company, the scope of the Supreme Court's ruling remains unclear.
Financial services companies should assess their business relationships with publicly traded clients to determine their exposure to SOX whistleblower actions. They should review and update their compliance policies and code of conduct and their anti-retaliation policies to protect against a potential SOX whistleblower action.
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