Washington attorney, former prosecutor and former SEC enforcer Dan Hurson has written an article of advice for middle managers who become targets of internal corporate investigations. It is called, Memo to Middle Management: How to Avoid Becoming Road Kill In a Corporate Internal Investigation. He notes that big law firms love to take on internal investigations because they get to bill a deep pocket to loads of hours getting into a complex matter. The Securities and Exchange Commission (SEC) loves to have corporations do the investigation and hand them the results. One problem with this deferral to internal corporate investigations is that the top corporate officials calling the shots rarely want the investigation to find that they are personally at fault. So, internal investigations have an institutional bias to blame someone lower on the corporate food chain. If the internal investigation can blame the messenger, it will serve an added function of providing the pretext needed to fire the whistleblower.
Hurston notes on page 8 of his memo that most SOX whistleblowers will not remain anonymous. Either the caller’s name will be leaked, or managers will figure out who had the disclosed information and the motive to call, or the whistleblower will want to claim credit for raising the concern about the wrongdoing. Once the identity is out, the whistleblower will need to brace for the internal investigation. Hurson also notes the sad statistics for SOX whistleblowers. Of 1,455 complaints, the federal government has ruled in favor of only 21 whistleblowers. Not good odds.
Hurson comments that many dismissals are based on the view that SOX’s employee protection applies to parent companies, and not their subsidiaries. Although there is a provision in the pending financial reform bill (as passed by the House) to fix this loophole, I do not believe that this view reflects current law. I believe that the new Department of Labor will be applying SOX to subsidiaries under the current law, although the Congressional fix will be welcome on this and other issues.