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An accountant who failed to show that he had an objectively reasonable belief that his employer had violated federal securities laws under Sarbanes-Oxley could not receive the protections of the statute's whistleblower provision, the 4th Circuit has ruled.

A company's chief financial officer objected to several practices by his employer, a bank holding company listed on NASDAQ.

He claimed that some of the company's accounting practices violated generally accepted accounting principles, including permitting the CEO to make entries in the general ledger, limiting the CFO's access to the company's outside auditor and reporting the recovery of loans as income, causing the company to overstate its profits.

The accountant communicated his concerns to management and also refused to sign the quarterly reports required by the Securities and Exchange Commission. The company performed an investigation of his concerns, but when it concluded that they lacked merit he was discharged.

He then filed a complaint with OSHA, alleging that he had been dismissed in violation of the whistleblower protection provision of Sarbanes-Oxley, §1514A.

An administrative law judge determined that he was fired because of protected activities and ordered him reinstated with back pay. But the Administrative Review Board reversed.

The 4th Circuit affirmed.

The court first noted that "communications about misclassifications in financial statements may, in some circumstances, form the basis for a Sarbanes-Oxley whistleblower action."
However, it then held that the plaintiff failed to explain how he could have an objectively reasonable belief that the practices at issue – reporting the loan as income, allowing individuals without expertise to make ledger inquiries and limiting access to the company's auditor – violated any of the laws listed in §1514A.

"[The plaintiff] utterly failed to explain how [the company's] alleged conduct could reasonably be regarded as violating any of the laws listed in §1514A. Although [the plaintiff] advanced several arguments before the [Board], he supported these arguments only with irrelevant and inapposite authority or conclusory, general statements," the court said.

U.S. Court of Appeals, 4th Circuit. Welch v. Chao, No. 07-1684. Aug. 5, 2008. Lawyers USA No. 99310533. Click here for the full text of this opinion.