The U. S. Supreme Court in Lawson v. FMR LLC held that the whistleblower protections in the Sarbanes-Oxley Act extend to employees of privately held contractors and sub-contractors of publicly traded companies. In doing so, the Court reversed the holding of a lower court that ruled the Act only applied to direct employees of the publicly-held company.
In Lawson v. FMR LLC, the publicly traded companies were Fidelity mutual funds advised by FMR LLC. As is typical of a mutual fund, the Fidelity funds did not have employees. The day-to-day investment management and administration of the funds were performed by employees of an external investment adviser pursuant to an advisory contract with the funds.
Two employees of FMR LLC filed whistleblower complaints with the U.S. Department of Labor. The Court of Appeals ruled that the Sarbanes-Oxley Act extend to employees of privately held contractors and sub-contractors of publicly traded companies. In reversing the lower court’s holding, the Supreme Court stated that the legislative history of the Sarbanes-Oxley Act shows Congress’ understanding that outside professionals bear significant responsibility for reporting fraud by the public companies with whom they contract. With respect to the investment management industry, the Court noted that the Sarbanes-Oxley Act protects the employees of investment advisors, who are often the only firsthand witnesses to shareholder fraud involving mutual funds.
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