The Sarbanes-Oxley Act of 2002, also referred to as SOX or as Sarbox, is a federal statute that requires specific corporate recordkeeping measures as well as financial reporting. It was passed in the aftermath of several huge corporate scandals, chief among them the accounting fraud incident at Enron. It supplements other existing securities laws for publicly traded companies dealing with the Securities and Exchange Commission, including the Securities Exchange Act of 1934. It also provides an avenue for whistleblowers to report violations of the law to federal law enforcement agencies. Like other whistleblower statutes, SOX also protects whistleblowers from retaliation by their employer for their legal whistleblowing activities.

Let’s examine some of these facets of the Sarbanes-Oxley Act more closely.

SOX Covers Lots of Different Financial Misconduct

Because the goal of the Sarbanes-Oxley Act was to punish conduct that happens quietly in the background, it is a highly technical law. However, its reach is profound and has created numerous compliance obligations that are corporate responsibility in publicly traded corporations. Failing to comply with those requirements can lead to sanctions, and investigations into those failures frequently uncovers deeper forms of corporate fraud.

Whistleblowers can report either that underlying fraud or the failure to comply with any regulation promulgated by the Securities and Exchange Commission (SEC), including those dealing with financial statements, financial reports, record-keeping and corporate disclosure requirements, to law enforcement.

Some examples of the types of fraud that can be reported under the Sarbanes-Oxley Act include:

• Mail and wire fraud
• Investment fraud
• Insider trading
• Accounting fraud
• Securities fraud
• Bank fraud
• Shareholder fraud
• Corporate fraud

Just a few examples of the SEC regulatory violations that can lead to a SOX whistleblower case include:

• Releasing required corporate disclosures that are inaccurate or misleading
• Failing to comply with SOX’s record keeping provisions and enhanced financial disclosures in accordance with the Generally Accepted Accounting Principles
• Destroying corporate records
• Not maintaining an adequate internal control structure or internal controls that are designed to detect accounting irregularities or fraud
• Using accounting standards or practices that do not comply with SOX requirements
• Interfering with external audits

If you have evidence of any of these types of misconduct then you can become a whistleblower, even if the misconduct has not happened yet, but is about to.

However, to advance under the Sarbanes-Oxley Act, you must be an eligible employee.

Eligible Whistleblowers Under SOX

SOX is only a potential avenue for advancing a whistleblower claim if you are an employee of a Nationally Recognized Statistical Ratings Organizations (NRSROs), or if you are an:

• Employee, officer, or agent of the publicly traded company targeted by the whistleblower claim
• Employee of an affiliate or subsidiary of the company
• Employee of a contractor or subcontractor that works with the company

While this seems like a very tight eligibility requirement, the reality is that the misconduct covered by SOX is of the sort that the only evidence of it will typically only be accessible to someone inside the corporation or doing close work with it, such as registered public accounting firms conducting audits, for example. However, even if you are not eligible to file a whistleblower lawsuit under the Sarbanes-Oxley Act, there are very likely to be other options to pursue.

Whistleblower Rewards Depend on the Amount Recovered

The Sarbanes-Oxley Act does not, itself, include a provision providing whistleblowers with financial awards – its passage in 2002 was a complicated one, and did more amending of existing laws, like the Securities and Exchange Act, than creating new ones. The short of it is that whistleblower cases that advance under the Sarbanes-Oxley Act can recover a whistleblower award under a different law, the Dodd-Frank Act.

Under that law, whistleblowers are entitled to between 10 and 30 percent of the proceeds of the case. Furthermore, they can also be entitled to receive a similar share of any related action if the information that they report to the SEC leads to a civil sanction of a million dollars or more. This can matter if the SEC heavily sanctions the defendant and then refers the case to the Department of Justice (DOJ) for criminal prosecution. If the DOJ settles that case or secures a financial verdict, the SOX whistleblower could recover a share of that amount, as well.

Unlike the Dodd-Frank Act, though, SOX whistleblowers do not share the award with others who blew the whistle on the misconduct. Instead, only the first whistleblower who reports the case to law enforcement gets it. SOX whistleblowers, therefore, need to act quickly.

SOX’s Anti-Retaliation Measures

The Sarbanes-Oxley Act is far more explicit with its whistleblower protection provision, 18 U.S.C. § 1514A. This provision makes it unlawful for employers to retaliate against workers who have blown the whistle on misconduct.

Like in similar anti-retaliation provisions in other federal whistleblower laws, SOX protects you if you:

• Filed a whistleblower claim with a federal law enforcement agency or a member of Congress
• Helped with a whistleblower claim
• Testified in a proceeding related to SOX violations

However, unlike in other whistleblower statutes, SOX’s provision is also triggered if you report the evidence of misconduct internally. You are also protected from workplace retaliation even if your belief that it was misconduct ends up being mistaken.

If your employer retaliates against you for doing any of these things, you have legal recourse. That retaliation can take the form of:

• Discharge
• Demotion
• Suspension
• Harassment
• Any other form of workplace discrimination
• Any threats of the above actions

The legal recourse that you have if you suffer a reprisal for blowing the whistle on misconduct is to file a retaliation claim with the Department of Labor (DOL). This has to be filed within 180 days of the retaliation.

If you can successfully prove that you were retaliated against for filing your whistleblower claim, you can recover:

• Front pay or reinstatement to your former position
• Back pay, with interest
• Lost benefits
• Court costs
• Reasonable attorney fees
• Special damages

These special damages include all of the ways that you have suffered from the retaliation, including:

• Emotional distress
• Reputational harm
• Personal humiliation

Additionally, whistleblowers often demand punitive damages for being retaliated against, and have a good record of recovering them.

“Whistleblower retaliation claims under the Sarbanes-Oxley Act frequently lead to significant settlements or awards, many of them over a million dollars.” – Dr. Nick Oberheiden, founding partner of Oberheiden P.C. and a leading SOX whistleblower attorney at the firm.