Whistle-Blower Wins Protection Under Sarbanes-Oxley

An administrative law judge has ordered that a former CFO be rehired, with back pay, in a decision that is considered one of the first related to whistle-blower protections promised by the Sarbanes-Oxley Act.

The case did not play out on Wall Street or in tony corporate boardrooms, but in Floyd, Virginia, home to 432 residents and the headquarters of Cardinal Bankshares Corp.

The whistle-blower, David Welch, was fired as chief financial officer of Cardinal Bankshares Corp. in October 2002 after he expressed concerns about its financial reporting, alleged insider trading and internal controls. He then filed a complaint with the U.S. Department of Labor.

The department’s Administrative Law Judge Stephen Purcell on Thursday ordered the Bank of Floyd and holding company Cardinal Bankshares Corp. to rehire Welch with back pay.

"I feel totally vindicated," Welch told the Roanoke Times. "The judge's decision was clear and convincing."

The Sarbanes-Oxley Act, passed after a series of massive accounting scandals at huge corporations, protects whistle-blowers if the allegations "were based on a reasonable belief that violations were being committed."

Welch’s attorney, Bruce Shine, said Friday that Sarbanes-Oxley applies to small public companies in small towns, protecting employees who raise concerns about accounting practices or filings with the Securities and Exchange Commission — even if those concerns turn out to be unfounded.

"It's intriguing in the sense that you wouldn't expect Floyd to be the place where history is made," Shine said.

Welch said, "One thing about Sarbanes-Oxley: For even a little guy like me in a company that is way below the radar screen, it still applies."

Cardinal Bankshares contends it fired Welch because he refused to meet — without his attorney — with a Cardinal attorney and an accountant with the company’s external auditing firm.

Cardinal Bankshares plans to appeal the decision, taking it all the way to the Supreme Court if necessary.

In the meantime, Welch plans to return to Cardinal Bankshares.

"It's not going to be a comfortable thing at all because there is so much animosity from their side," he said. "I just hope there is enough publicity about this decision to clear my name in the banking and accounting community."


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