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U.S. Supreme Court Extends the Scope of Whistleblower Law in Mutual Funds to Include Law Firms
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The U.S. Supreme Court held this Tuesday that the application of the Sarbanes-Oxley whistleblower provisions also protects privately held contractors and subcontractors of a company from retaliation. The court made it clear that the rules also apply to contractors like law firms and auditors. However, with power comes responsibility and the recent broadening of scope may also broaden the accountability of contractors in the mutual fund industry.

Law firms and auditors were specified by the way Justice Ruth Bader Ginsburg framed her question on the issue. She asked whether the whistleblower protections “shield only those employed by the public company itself, or does it shield as well employees of privately held contractors and subcontractors—for example, investment advisers, law firms, accounting enterprises—who perform work for the public company?” And according to her opinion, the answer was, “yes.”


Ginsburg opined that without such protections accountants and lawyers would be vulnerable under the provisions of the Sarbanes-Oxley rules that were created after the collapse of Enron. She mentioned that the Congress had responded after learning that employees of Enron and its accounting firm Arthur Andersen had faced retaliation for trying to report misconduct.

The justices voted 6-3, and dissenting justice Sonya Sotomayor observed that under the interpretation of the majority, “the Sarbanes-Oxley Act authorizes a babysitter to bring a federal case against his employer—a parent who happens to work at the local Walmart (a public company)—if the parent stops employing the babysitter after he expresses concern that the parent’s teenage son may have participated in an Internet purchase fraud. And it opens the door to a cause of action against a small business that contracts to clean the local Starbucks (a public company) if an employee is demoted after reporting that another nonpublic company client has mailed the cleaning company a fraudulent invoice.”

The case is Lawson v. FMR, U.S. Supreme Court, No. 12-3.

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