Now this is interesting. Whistleblower protection laws previously did not apply to contractors so, as a for instance, if and accountant were to find fraud, they could not report it to the SEC or PCAOB without risking a lawsuit for violating their non-disclosure agreement and they were not protected under Section 806 of the Sarbanes-Oxley Act (whistleblower section). This was the reality for all consulting firms. We were essentially required to keep our mouths shut or suffer literally being sued into the ground for trying to “do the right thing.” This was always a concern for us consulting firms because “doing the right thing” is required by the SEC and PCAOB or you could face sanctions that would never allow you to work with a public company again; however, if you did “do the right thing,” then you could literally face losing your business, home, and career for violating your contract with your fraudster customer. This was a serious dilemma.
Well, it appears that the case Lawson v. FMR LLC has changed the definition of who is protected under the whistleblower laws and now this definition will include consultants. Lawyers argued that allowing consultants to raise these types of concerns could open the floodgates for frivolous lawsuits or opportunistic consultants seeking easy payoffs. Obviously, these lawyers have never tried to bring about a whistleblower case or they would know that there is nothing easy about it (read “The Man Who Paid the Price for Sizing up Enron, N. Y. Times, Mar. 27, 2002).
To avoid the presumption that anyone and everyone is out for “easy” money from a lawsuit, the court opinion included a statement that “the contractor…fulfilling its role as a contractor for the public company, not the contractor in some other capacity.” Tr. Of Oral Arg. 18-19 (Government counsel). See also id., at 23 (“[I]t has to be a person who is in a position to detect and report the types of fraud and securities violations that are included in the statute…”
So, with the idea that the nanny may sue and claim protection under Sarbanes-Oxley out of the way, what now has been addressed is that consultants, in large part, often see things in companies that day-to-day employees do not. An argument could be made to support the idea that fraudsters may have previously intentionally hired consultants to help with their devious intentions since they knew that whistleblower protection did not apply and therefore the consultant’s hands were tied. The best we could do in that type of situation is quit and feel frustrated and offended that the potential fraudsters even asked us to get involved. “The legislative record shows Congress’ understanding that outside professionals bear significant responsibility for reporting fraud by the public companies with whom they contract, and that fear of retaliation was the primary deterrent to such reporting by the employees of Enron’s contractors.” This ruling could allow for a significant change in public companies internal control reports or even require some restatements based on some previoulsy hushed perspectives.
The Honorable Justice Scalia concluded on March 4, 2014 that: