Supreme Court Extends Whistleblower Protection to Mutual Fund Service Providers
The Supreme Court has held that employees of mutual fund service providers are protected from job retaliation if they report securities fraud and claim whistleblower status under the Sarbanes-Oxley Act. The Court rejected the mutual fund company’s argument that Sarbanes only protects employees of the mutual fund, the designated “public company” under Sarbanes. The Court opines that not to protect employees of fund service providers would essentially exempt the mutual fund industry from the anti-retaliation provisions because mutual funds operate through their service providers. The Court specifically included lawyers and accountants as deserving protection under the anti-retaliation provision.
OUR TAKE: Although we believe that the anti-retaliation provisions of both Sarbanes-Oxley and Dodd-Frank have significant unintended negative consequences, the Supreme Court’s interpretation appears consistent with Congressional intent. Otherwise, mutual fund personnel, who mostly work for service providers, would not have protection. One significant open issue is whether Chief Compliance Officers, generally denied whistleblower protection under Dodd-Frank, could seek such protection under Sarbanes-Oxley.