Day v. Staples

First Circuit Decision in Day v. Staples on the whistleblower protections of SOX


In this decision the First Circuit held that a former employee seeking Sarbanes-Oxley Act whistleblower protection acted in good faith, but under an objective analysis, his belief that the company was engaged in fraud was not reasonable.

The employee complained that the company improperly handled regularly customer returns. The company claimed that the employee was terminated for performance reasons not connected to his statements concerning improper conduct.

The Department of Labor administrative law judge dismissed the SOX complaint, as did the federal district court. The district court concluded that the belief that Staples was engaged in accounting fraud was not reasonable.

In this decision, the First Circuit stated that "the complaining employee's theory of such fraud must at least approximate the basic elements of a claim of securities fraud."

This is the first decision by the First Circuit under under the whistleblower protection provision of the Sarbanes-Oxley Act ("SOX"), 18 U.S.C.§ 1514A.

Day's complaint did not assert any specific violations of

securities laws; rather, it stated that he believed certain Staples practices resulted in the "manipulat[ion] [of] accounting data in an unlawful manner that had negative financial ramifications for Staples," which "defrauded Staples' shareholders" and violated the Staples Code of Ethics.

The Court stated: "The plain language of SOX does not provide protection for any type of information provided by an employee but restricts the employee's protection to information only about certain types of conduct. Those types of conduct fall into three broad categories: (1) a violation of specified federal criminal fraud statutes: 18 U.S.C. § 1341 (mail fraud), § 1343 (wire fraud), § 1344 (bank fraud), § 1348 (securities fraud); (2) a violation of any rule or regulation of the SEC; and/or (3) a violation of any provision of federal law relating to fraud against shareholders."

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Reference Info:Decision | Federal, 1st Circuit, Massachusetts | United States

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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