Two former Fidelity Investments
employees are finding out the hard way that a U.S. law protecting whistleblowers at publicly traded companies does not cover employees of mutual fund firms, Reuters reports
According to the pub, the U.S. Court of Appeals for the 1st Circuit overturned a Boston federal judge's decision to apply the provisions of the Sarbanes-Oxley Act to private companies serving under contract as advisers to public companies. The ruling marks the first time an appeals court has weighed in on the issue.
In the Fidelity case, plaintiff Jackie Hosang Lawson
, who worked at Fidelity from 1993 until 2007, reportedly complained she alerted supervisors to problems, including the alleged improper retention of $10 million of fees, only to be passed over for a promotion and threatened with punishment for insubordination.
The other plaintiff, Jonathan Zang
, who PMed several mutual funds from 1998 to 2005, alleged Fidelity gave him poor reviews and fired him in retaliation for his complaint that a new pay plan for Fidelity portfolio managers inaccurately and illegally described how pay was calculated.
In its defense, Fidelity argued that Lawson and Zang worked for affiliates such as its Fidelity Management & Research arm, rather than a public company that Sarbanes-Oxley was meant to cover.
And the 1st Circuit sided with Fidelity, after analyzing the text of the statute and its legislative history, noting that other whistleblower statutes in the Energy Reorganization Act and the Pipeline Safety Improvement Act specifically extend coverage to contractors, unlike Sarbanes-Oxley.
"We are bound by what Congress has written," the court reportedly explained, adding that if Congress intended the term "employee" to have broader meaning, it could amend the statute.
For what its worth, Lawson and Zang reportedly had the backing of both the Securities and Exchange Commission (SEC
) and the Department of Labor (DoL
), which submitted briefs on appeal that supported the extension of whistleblower protections to mutual fund employees. But the 1st Circuit would hear none of it and reportedly refused to defer to the agencies' interpretation.
Paul Nemser, a lawyer for Fidelity, reportedly praised the opinion as "very thoughtful and definitive."
The Boston Globe
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