DeGuelle filed a lawsuit against the company in federal court in Milwaukee. The lawsuit claimed that the company engaged in a pattern of racketeering activities that included the tax fraud, and firing DeGuelle in retaliation for providing the government information about the fraud. DeGuelle’s lawsuit uses an improvement made to the criminal charge of witness retaliation. 18 U.S.C. § 1513(e). One issue is whether a victim of such retaliation can seek damages under the Racketeer Influenced and Corrupt Organizations Act (RICO). The company said the law does not permit such a recovery, and the district court agreed, dismissing DeGuelle’s lawsuit. DeGuelle appealed, without the representation of his original lawyer. Now the Seventh Circuit has decided to appoint a lawyer for him and allow the new lawyer to start briefing the case all over again.
Federal law makes it a crime to:
knowingly, with the intent to retaliate, take any action harmful to any person, including interference with the lawful employment or livelihood of any person, for providing to a law enforcement officer any truthful information relating to the commission or possible commission of any Federal offense . . .. 18 U.S.C. § 1513(e).
This law was strengthened as part of the 2002 Sarbanes-Oxley Act (SOX) that seeks to prevent corporate fraud and protect whistleblowers. My colleague, Stephen M. Kohn, Executive Director of the National Whistleblowers Center, wrote about this section as follows:
PROHIBITION AGAINST EMPLOYEE DISCRIMINATION (CRIMINAL)
Section 1107 of H.R. 3763, codified as 18 U.S.C. 1513(e), amends the obstruction of justice statute to clearly prohibit retaliation against employee whistleblowers. The new provision states as follows:
Whoever knowingly, with the intent to retaliate, takes any action harmful to any person, including interference with the lawful employment or livelihood of any person, for providing to a law enforcement officer any truthful information relating to the commission or possible commission of any Federal offense, shall be fined under this title or imprisoned not more than 10 years, or both.
This provision has very significant implications. The law covers disclosures for any violation under federal law. It is not limited to employee reports of criminal corporate fraud. Moreover, employers who lose civil whistleblower cases may find themselves personally accountable in a subsequent criminal proceeding. Finally, this amendment could result in whistleblowers obtaining coverage under civil RICO. Specifically, violations of 18 U.S.C. 1513 constitute one of the “predicate acts” upon which a person may base a civil RICO claim. 18 U.S.C. 1961(1). The SOX amendment to 18 U.S.C. 1513 addressed the major roadblock identified by the U.S. Supreme Court which prevented whistleblowers from obtaining protection under civil RICO. See, Beck v. Prupis, 592 U.S. 494 (2000).
The criminal prohibition against whistleblower retaliation also directly relates back to the civil employee protection provision and the SEC’s regulatory authority. Section 3(b)(1) of the SOX states that “a violation by any person” of any provision of the SOX “shall be treated for all purposes in the same manner as a violation of the Securities Exchange Act of 1934 . . . and such person shall be subject to the same penalties, and to the same extent, for a violation of that Act.” Thus, if any publicly traded corporation discriminated against any employee for blowing the whistle concerning any federal offense, such discrimination would not only constitute a potential criminal obstruction of justice, but would also constitute a violation of the Securities Exchange Act and would subject that employer to administrative sanctions by the SEC and other enforcement actions.
Any employer who discriminates against a whistleblower in violation of either 18 U.S.C. 1514A or 18 U.S.C. 1513(e) also commits a violation of the Securities Exchange Act of 1934. Under the SOX, any person who retaliates against a whistleblower would be subject to SEC “penalties” to the “ same extent” as if that person violated the Securities Exchange Act of 1934.
Consequently, if an employer loses a SOX whistleblower claim, that employer may also be subject to criminal prosecution under the SOX obstruction of justice amendment and “penalties” under the Securities Exchange Act of 1934.
H. Fisk Johnson, head of the company, told Tax.com that he ordered an investigation of DeGuelle’s concerns and, “I didn’t like what I heard.”