Assignment 1: Whistleblowing and Sarbanes-Oxley
LEG500030VA016-11 (Law, Ethics & Corporate Governance
Professor Timothy Griffin
July 19, 2015
Describe the key characteristics of a whistleblower, and briefly summarize one (1) researched instance of whistleblowing in one (1) publicly traded company within the last 12 months. Include the details of the issue that the whistleblower reported and the effect of the whistleblower’s actions on both the whistleblower himself and the company.
A whistleblower is a person who exposes any kind of information or activity that is deemed illegal, dishonest, or not correct within an organization that is either ...view middle of the document...
In the second case, L-3 Communications Holdings acting on information provided by an employee, fired four workers after being forced to restate earnings and revise downward its full-year guidance, costing the company more than $1 billion in market value.
Even though SEC didn’t have to issue an award in the first case, Mike Delikat, a partner at Orrick Herrington & Sutcliffe and chair of the firm’s whistleblowing task force, thinks it may have done so to send a message to companies that they need to take seriously the credible complaints of wrongdoing they receive from their workers. He said SEC has been criticized for advocating that employees can come to the agency first with information, even if their companies mandate they report internally. This award is “like a demonstration that folks still are reporting internally but companies aren’t doing anything about it so we have to step in and whack those companies that don’t do anything,” said Mr. Delikat. “That is my speculation.”
L-3 responded exactly the way a publicly traded company is required to by Sarbanes-Oxley and Dodd-Frank, sending the proper signal to whistleblowers that information about fraud is welcome and will be acted upon, even if the results lead to short-term negative consequences for the business.
Whistleblowing cases reported to the Financial Conduct Authority (FCA) have increased by 35 per cent in the past 12 months, according to new information obtained under the Freedom of Information Act by Kroll, the global investigations firm. The Securities and Exchange Commission (SEC) made payouts to four whistleblowers during this fiscal year including one award of over $14 million, the largest whistleblower payment to date under the Dodd Frank Act. Kroll says that payouts such as these will encourage more whistleblowers to come forward to the US regulator in search of bounties, as the rewards on offer have no jurisdictional limits as long as the case has a negative impact on US financial markets.
Decide whether or not the whistleblower was justified in reporting the company’s actions. Provide a rationale for your response.
With L 3 Communications Holdings, the problems were related to a Defense Department contract running from December 2010 to January 2015. L-3 said the employees involved had overstated sales and inappropriately deferred cost overruns in their internal reporting on the contract. The deal involved maintenance and logistics for a fleet of 190 Army transport aircraft for the Army Materiel Command. This was very critical knowledge for everyone to know. This information could have caused problems for the Army as well as the company and the whistleblower was correct in telling. And the company did the right thing to fire the people involved.
In any case whistleblowing is justified. Any publically traded company or any government that represents the people or a group of people is responsible for doing the correct thing and doing it honestly. Publically traded...