Sarbox Protected Activity: Welch v. Cardinal Bankshares

Lora Bentley

I last posted on Sarbox whistle-blower and former Cardinal Bankshares executive David Welch in June, shortly after the Departmet of Labor Administrative Review Board denied his claim and ruled he did not prove his actions were protected under Sarbanes-Oxley.


In response, a reader asked what would constitute protected activity under the Sarbox whistle-blower provisions if Welch's wasn't. (To read our previous posts on the case, see here and here. Related posts are here and here.) Since I don't practice labor and employment law, I didn't even hazard a guess. However, the November issue of The Metropolitan Corporate Counsel features an interview that sheds valuable light on the subject.


Barbara E. Hoey, a partner and co-chair of the labor and employment law department at Kelley Drye & Warren, has followed Welch's case closely, according to the piece. She notes:

The first principle the ARB defined in May 2007 was what constituted a "reasonable belief" of unlawful activity under Sarbanes-Oxley, and stated that Welch was required to show that he "definitively and specifically" complained to his employer regarding an issue that he believed constituted securities fraud or some other violation under the securities laws.


The second thing the ARB found that Welch would be required to prove was that this belief was reasonable, considering his expertise, knowledge and position at the company. This is a difficult standard, and it indicates that the more expertise and information a person has, the higher the standard to which he or she is going to be held.

Hoey indicates that after evaluating each of Welch's claims according to the standard it had announced, the administrative review board decided Welch did not have a reasonable belief that the errors he found violated securities laws.


Even though the Welch case dragged on much longer than anyone expected, it did present "a clearer roadmap on how a company must conduct its affairs under Sarbanes-Oxley," Hoey said.

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