Fidelity, a private company controlled by Boston’s Johnson family, argued that the employees were not protected by Sarbanes-Oxley because they technically did not work for the mutual funds; they worked for Fidelity, which manages the funds, in what the company describes as a contract relationship. The District Court had ruled that whistle-blower protections applied because the mutual funds have public shareholders. But the Appeals Court reversed that ruling, stating that Congress did not include contractors in its definition.
The majority opinion stated that if Congress intended the term “employee’’ to have a broader meaning, “it can amend the statute. We are bound by what Congress has written.’’
Jason Archinaco, a securities lawyer in Pittsburgh, said the decision is not in keeping with the intent of the law, and could have a chilling effect on employees who feel they should speak up about company problems.
“The act exists to promote people to come forward,’’ Archinaco said. The appellate court decision “sends a message to people - keep your mouth zipped, because if you don’t, you may have no protections at all.’’
The Securities and Exchange Commission and the Department of Labor both filed briefs supporting the former employees. But the court said, “We owe no deference to the positions stated there.’’
The SEC is reviewing the decision, according to John Nester, a spokesman for the agency. He said employees of investment firms that run mutual funds are protected from retaliation under the new Dodd-Frank whistle-blower regulations, when they report to the regulators acts they believe to be violations of securities laws.
Fidelity spokesman Vincent Loporchio said, “We have stated in the past that we believed the claims were without merit. Fidelity has long provided employees with a confidential hot line to anonymously report potential violations of ethical business practices, laws or regulations.’’
The US Chamber of Commerce filed a brief supporting Fidelity’s argument.
The appellate case started with two separate lawsuits brought by former Fidelity employees, alleging that the company illegally retaliated against them.
Jackie H. Lawson alleged that during her 14 years at Fidelity Brokerage Services, she raised concerns about accounting methods, including the company improperly keeping millions of dollars in fees. She said she resigned in 2007 after the company retaliated against her and threatened her.
In 2006, Jonathan M. Zang, a former portfolio manager of several industry sector funds, said he was fired after telling his superiors in a widely circulated e-mail that there were “material inaccuracies’’ in regulatory filings for the funds.
Specifically, he complained that the company’s disclosures “overstated the connection between a Select fund’s performance and the compensation of the Select fund’s portfolio manager.’’
