Recently, the U.S. Court of Appeals for the First Circuit ruled that whistleblower protection afforded by section 806(a) of the Sarbanes-Oxley Act of 2002 (the Act) applies only to employees of public companies, as defined in the Act. The result of the case is that a significant number of potential whistleblowers employed by mutual fund service providers will not have the protection of the Act and may be vulnerable to retaliation by their employers. 

The Act generally protects employees who in good faith report concerns regarding activities inconsistent with shareholders’ interests. The First Circuit held that whistleblower protection does not extend to employees of a private contractor or subcontractor for a publicly traded company. Mutual funds, which are public companies, have argued they should be exempt from the whistleblower protections of the Act because funds themselves have no employees and instead solely rely on services provided by private contractors. 

Source: Investment Management Alert
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