Sarbox Whistleblower Didn't Prove 'Essential Element' of Case

Lora Bentley

Remember David Welch, the former Cardinal Bancshares CFO who became the first to win protection under the whistleblower provisions of Sarbanes-Oxley?


After he was fired from his position, Welch filed suit under Sarbox, alleging that the termination was retaliatory. He claimed that he was let go because he refused to sign off on year-end regulatory filings due to concerns about the company's internal accounting controls. Cardinal, of course, didn't agree.


An administrative law judge recommended that Cardinal reinstate Welch, but a federal district judge refused to enforce the ruling because it wasn't a final decision from the administrative proceedings. The litigation dragged on for more than five years.


At the end of May -- just one day after we posted this update -- the Department of Labor's Administrative Review Board decided "it would not adopt [the ALJ's recommendation]" that Welch be reinstated, according to CFO.com.


The board denied Welch's complaint, deciding he did not prove that his actions in questioning Cardinal's accounting controls were protected under Sarbanes-Oxley.


It's not the resolution Welch wanted, I'm sure, but at least this particular phase will be behind him before he starts his new teaching position.

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Jun 14, 2007 6:43 PM William William  says:
If a CFO exercising the appropriate "gate keeper" judgemet on final SarOx signoff can't get protection for not signing off, does this mean that when a CEO does sign off stating he's confident everything is in order and then later takes the "...I didn't understand the details" defense; will he be found guilty or aquitted? Reply
Jun 14, 2007 7:09 PM Gabe Sandler Gabe Sandler  says:
Lora,Thank you for your excellent coverage of this case. While you have been posting this story for several days now, I still have not seen any comments from my fellow captive readers, so allow me to be the first. While I do happen to find it improbable that Welch is incapable of finding other suitable work outside of Cardinal (after all, I would personally hire him upon my cursory evaluation of the situation), I do think that there is something to be said for his tenacity in fighting such an uphill battle with the indignant persistence of Sisyphus, and I hope he will appeal this once again to reach a decisive final answer. I have seen details of this case on various Sarbox forums for years, and yet have not seen anyone raise the following issue:Why is this issue being handled at the State level when Sarbox is clearly a Federal Act (and when the Department of Labor, also Federal, has issued a fairly lengthy and conclusive opinion on the matter)? I hate to beg the question of our entire legal system, but as technological advancements bring us feasibly closer to the certification of realtime disclosure through XBRL, perhaps even streaming financial data directly to and from the soon-to-exist transnational exchanges themselves with SOX compliance enforced by internationally imposed standards for automated accounting and auditing that require revenue updates by the nanosecond (all lofty goals at this point, but indeed very possible), isn't it time we investigate the exponentially increasing probability of States' rights joining the lore of tirekicking dinosaurs in the annals of ancient history, basically becoming just a long-winded supercilious fable I force upon my grandkids in front of our smoldering digital fireplace? With each State administering their own Securities laws, I'm afraid that the world will never experience legitimate Free Trade, and we will never truly be capable of satisfying the spirit of Sarbanes-Oxley. It's taken Welch five years to fight his case - are we to believe it could truly be that complicated to determine right from wrong, and that the State judge is the ultimate authority?Hoping for a fast resolution,Gabe Sandler Reply
Jun 19, 2007 5:34 PM Peter Altuch Peter Altuch  says:
I'm curious about the Deficit Reduction Act which provides whistleblower protection for employees who indentify medicaid fraud. We would welcome hearing from the legal profession about any clients that are considering using anonymous hotlines to report fraud and abuse internally. It seems a contradiction since employees are rewarded for "ratting" out their employers. Is there any benefit to trying to handle the complaints internally? ...and why should an employee, who stands to benefit, use an internal reporting program. Reply
Apr 13, 2009 7:46 PM Laser Haas Laser Haas  says: in response to Gabe Sandler

America - as a general rule - is anti Whistle Blower.

We only commend a person who blows the whistle when it involves physical mayhem. Then, most do so reluctantly as Gotti whorshippers are the norm.

When it is of a civil matter - such as the one noted above - or Baron's or WebSci or O'Donnell's or James Traficant or Rick Convertino;

Society at large admonishes the concept.

The National Press pushes for sensationalism and has great disdain for all things generic.

Cronyism, corruption and corporate waste go hand in hand.

Think not.

Look at eToys -

Paul Traub, his firm TBF, his partner Barry Gold and their cohort co-conspirator MNAT - all were Caught - "red-handed" in supplication of 34 false affidavits (Court docket records in one case provided proof of perjury in eToys)

Martha Stewart went to jail for one falsehood in knee jerk reaction at the bad advice of counsel.

These attorneys were officers of the Court, held to a much higher standard - who were Forewarned by the Dept of Justice US Trustee's office NOT to do the very wrong they conspired and accomplished by a clandestine Hiring Letter to deliberately perpetrate Fraud on the Court.

Fraud on the Court vis-a-vis Officers of the Court is so heinous an offense that the US Supreme Court has stated there are NO Statute of Limitations (See In re Hazel Atlas Glass Co 1944)

The Dept of Justice US Attorney that refused to prosecute the case was a partner with the MNAT in 2001 (when the fraud and perjury began)

This and the fact that this petitioner was offered a bribe for $800,000 to look the other way - was reported to the US Attorney in CA

The CA US Attorney did not respond - directly

Instead, the L A Times reports in the story "Shake-up roils federal prosecutors" - that US Attorney O'Brien walked into a staff meeting, belittling his Asst US Attorneys and summarily disbanded the Public Corruption Unit as He THREATENED career prosecutors to keep silent.

OUr Case

Everyone's System of Justice


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