First whisteblower unprotected by SOX

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The Department of Labor's Administrative Review Board has ruled that a whistleblower's accusations were not protected under the Sarbanes-Oxley Act whistleblower protection provision, reports.

David Welch, former CFO of Virginia bank Cardinal Bancshares, in 2004 was the first person to win whistleblower protection under SOX. Welch said the bank fired him after he raised questions about the bank's accounting policies and internal controls. In June 2006, a Labor Department judge ordered that the bank reinstate him and restore pay and benefits.

The bank appealed, leading to this most recent ruling by the Labor Department's appeals board.

According to, "the appeals board countermanded Welch's contentions...reasoning that some of his charges were not protected under Sarbanes-Oxley, as the administrative law judge had opined."

The board's May 31 ruling states: "We reverse the ALJ's conclusion that Cardinal violated the SOX because, as a matter of law, he erred in concluding that Welch engaged in SOX-protected activity. Welch's concerns that Cardinal misclassified the loan recoveries and consequently misled investors do not constitute protected activity because Welch could not have reasonably believed that Cardinal misstated its financial condition. Likewise, Welch's complaints about access to Larrowe & Co. and about Cardinal's internal accounting controls are not SOX-protected activity because they do not relate to the federal securities laws. Therefore, since Welch has not demonstrated that he engaged in protected activity, an essential element of his case, we DENY his complaint."

The case has been in litigation for more than four years, during which time Welch has not found another job in accounting. But he will soon become a member of Franklin University's full-time teaching staff, where he will help establish an ethics and forensics program.

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