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Sarbanes-Oxley whistleblower retaliation decision

The U.S. Court of the Appeals for the Ninth Circuit recently ruled on the employer's appeal of an $11 million verdict in a whistleblower retaliation case, Wadler v. Bio-Rad Laboratories, Inc. (9th Cir. Feb. 26, 2019).

Mr. Wadler was an in-house attorney for a medical supplies company who investigated another employee's reports of potential bribery and other illegal practices in several foreign countries. His investigation confirmed some of these reports, and he also found additional problems, including unauthorized contracts that did not include compliance provisions under the Foreign Corrupt Practices Act (which prohibits bribery to get business in foreign countries). He reported his findings to the Board's Audit Committee in February 2013, which then hired an outside law firm to do an investigation. In June 2013, the law firm issued a report that purported to exonerate Bio-Rad, and Wadler was fired only three days later. Nonetheless, Bio-Rad paid the U.S. government $55 million to resolve its investigation of FCPA (bribery) issues in three of the four countries covered by Wadler's report.

The Ninth Circuit's decisions addressed several key points. First, the Supreme Court recently held that a Dodd-Frank complaint requires reporting to the SEC. Here, Wadler had only reported internally (prior to being fired), so he could not bring a Dodd-Frank retaliation complaint. This resulted in setting aside $2.96 million of the verdict.

Second, a poorly-worded jury instruction meant that the jury could find that a violation of the FCPA ("to bribe a foreign official") could support a Sarbanes-Oxley whistleblower retaliation complaint, as it violated a "rule or regulation of the Securities and Exchange Commission." This was error by the district court, because the FCPA is not a SEC "rule or regulation" but instead is a law enacted by Congress. However, this could be a harmless error if the district court (on remand) were to find that Wadler had presented sufficient evidence that Bio-Rad's conduct resulted in falsifying books and records, which would violate a "rule or regulation" of the SEC. It remains to be seen whether the district court will uphold the Sarbanes-Oxley verdict on the basis suggested by the Ninth Circuit, after subtracting the award for the Dodd-Frank claim.

More generally, if the jury instruction had instead been worded to include "violations of internal controls," then that could have avoided this problem, since SEC rules and regulations require publicly-traded companies to have internal accounting controls, and preventing bribery (a FCPA violation) is a key purpose of having internal controls. 

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