The Butterfly Effect

Disclosures to media hang in balance as Boeing whistleblowers seek legal remedy

Found this very intriguing legal battle, for my Investigative Reporting class, that could lay down the rules on how far our sources feel comfortable and safe in tipping us off! Read on...

An lesser known but crucial ongoing legal wrangle between Boeing Co., world’s second largest aircraft maker and two of its activist auditors, could change the nature, and frequency, of disclosures made to the news media by whistleblowers.

 The lawsuit, currently before a federal court of appeals in California -- hearings started on April 15 -- will decide whether or not the Sarbanes-Oxley Act 2002 protects whistle-blowing to the press. If the protection is not granted, it could curtail many fraud-busting disclosures, said a lawyer for the plaintiffs.  On the other hand, shielding it will raise tricky questions of exactly what constitutes media in today’s digital age, argued the Boeing lawyer in a phone interview. 

They both, however, agree that this David-and-Goliath lawsuit was a test case of sorts and the verdict, either way, was going to have "ripple effects."

 
“There are no precedents for this. This has never been decided before and that makes it much harder to anticipate which way it will go,” said Eric B Martin, a Richmond-based employment lawyer with law firm McGuire Woods LLP who is representing Boeing.

Both Nicholas P. Tides, an export compliance specialist, and Matthew C. Neumann became Audit IT SOX auditors for Boeing in January 2007 and during their stint made several complaints to supervisors about auditing deficiencies. But over time they concluded that “Boeing’s auditing culture was unethical” and the work environment “hostile”, according to the filings with the U.S. District Court of Washington, which gave the ruling in February 2010. This ruling is currently in appeal in the Ninth Circuit court.

Eventually, these executives leaked the documents to Andrea James, a reporter from the Seattle Post-Intelligencer – an action that led to their getting suspended and later, fired. Tides and Neumann then filed whistleblower suits in the federal court.

When the District Court quashed their plea in February last year, it said the  Sarbanes Oxley did “not prohibit termination for disclosures to the media” since it was not protected by the Act and “Boeing was entitled to terminate them for leaking confidential documents” in violation of corporate policies. The court further ruled that Section 806(1)(a) of the act protected employees against retaliation from employers only when the “information or assistance” was to “a Federal regulatory or law enforcement agency; any Member of Congress…or a person with supervisory authority…”

 In September 2010, the Washington D.C-based non-profit National Whistleblowers Centre, which represents such fraud-busters across the country, pitched in. Its executive director Stephen Kohn will argue alongside the plaintiffs' attorneys.

The Center has filed an amicus curiae, or friend-of-the-court brief, for Tides and Newmann arguing that whistleblowers were “a bulwark of accountability” against corrupt government or corporations, who “should not be forced to choose between their jobs and their conscience.”

The whistleblower lawyers, David Colapinto and Richard Renner, seeking reversal of District Court’s verdict, have said in their brief that the “legislative history of SOX supports a broad scope of protection, broad enough to include media disclosures” which has supported in bringing many criminals to book.

News organizations broke stories on the Enron scandal and the ponzi scheme run for two decades by Bernie Madoffbefore SEC investigations began, the brief recounts. It also quotes a study by the Booth School at the University of Chicago that found nearly 15.5% of corporate frauds were detected by the media, compared to 14.1 % detected by industry regulators, government agencies and self-regulatory organizations.

 The lower court’s verdict would put the lid on such instances, contend NWC lawyers.

 Citing previous case laws – pertaining to the First Amendment, The Whistleblower Protection Act, Water Pollution Control Act, Occupational Safety and Health Act – the plaintiff’s brief says that a restrictive or “per se exclusion of disclosures to the media from Sarbanes Oxley's zone of Protection” “perverts the purpose of the Act.” The district court had said that since media wasn’t specifically mentioned, it was excluded from the list.

Boeing’s lawyer Martin said, “If the protection were to be granted under SOX, then yes. a lot more whistle-blowing will happen through the media.  But I’m not sure members of the media are capable of acting on that information.”

CNBC.com on February 8 wrote a story about a mushrooming “cottage industry” around whistle-blowing in the US, with lawyers actively soliciting such cases for a share in the spoils and how these truth tellers were emerging as the latest breed of “bounty hunters”.

“The content of disclosure is important, not the medium. Whether it is a journalist or a foreman, the protection should apply to everyone under SOX,” said Renner in a phone interview. He wants a blanket protection for such public service “…even in case of false alarms, even when the whistleblower is proved wrong" since "he didn’t know at the time of disclosure what the outcome of probe would be!”

There is, however, slippery ground around this argument.

 “Today we have blogs and twitter and websites reporting on news as well. So what really constitutes media? Where is the line drawn if the protection were to be extended?" asks Martin. The next real good question will then be: So is Wikileaks media too?

 

One man’s battle to fight greed -- with greed, cash and lots of gumption!

In mid-2007, a private banker working for UBS in Geneva booked a flight to US on his personal expense to meet the federal authorities. His conversation exposed one of the biggest offshore tax fraud which involved 19,000 alleged tax cheats, worth more than $19 billion. UBS paid $780 million in fines, revealed identities of 250 clients – another first for Swiss banking. Yet the banker who exposed the fraud is serving a 40-month prison term.

“All because he walked into the wrong office in Washington DC!” said Stephen M.Kohn, lawyer to this UBS banker Bradley Birkenfeld in an exasperated tone and breaking off from his usual carefully punctuated speech. “He went to the criminal division of Department of Justice and got implicated. They don’t care about tax billions saved, IRS does!”

Kohn is campaigning to get Birkenfeld out who could be the only US citizen ever to be convicted of a crime he himself provided extensively disclosures on. Yet Birkenfeld is not the only one on Kohn’s mind.

  One of US’ top experts in whistleblower protection laws, 54-year old Kohn has had 25 years to fight his battles. He has helped draft protective clauses in Sarbanes-Oxley Act and the more recent Dodd-Frank legislation and then fought cases arguing on those laws in courtrooms.

Along the way, he co-founded the non-profit National Whistleblowers Center to protect snitches from retaliatory action, wrote the first ever legal treatise on this and has sued the Federal Bureau of Investigation, Department Of Justice, nuclear power firms and drug maker Bristol-Myers Squibb for retaliating against the whistleblowers. Currently, he is taking on aircraft maker Boeing in a lawsuit that could forever change the way information is shared with the media.  

Kohn, a native of Greenbrook, New Jersey, traces his entanglement with the establishment to his early days in college when his student-run “muckraking” newspaper in Boston University called B.U Exposure, exposed irregularities in university president John Silber’s administration in 1979. A year later in a TV show, Silber labeled the newspaper staff “short pants communists."

 “The university came after us. ACLU had to represent us in court. I had a good go at it then,” said Kohn in a telephonic interview. “From faculty to students to support staff all the way down, we had our sources. I was with whistleblowers and I didn’t even know it.” Those events cemented his beliefs in what would eventually morph into a lifelong cause.

After graduating in political sciences from Brown University, he went to study law at Northeastern University and was drawn towards First Amendment issues while working as a clerk in the Institute of Policy Studies in 1984.

“It was like the wild, wild west back then. All the laws that now exist for whistleblowers weren’t around then. It was a very wide, new and exciting field,” he said.

Nearly 30 years on, one Enron, WorldCom, Madoff and a scalding financial meltdown later, a lot has changed on the legislative landscape for those willing to speak up, out loud. What has not changed, however, is Kohn’s relentless pursuit to protect these whistleblowers, in what are essentially David-meets-Goliath sort of lawsuits.

Richard Renner, an attorney and a member of the board at Kohn’s non-profit has known him for over 15 years. “To try and sample Stephen Kohn’s personality is like taking a sip out of a fire hose,” said Renner, calling him “indefatigably energetic” who was “constantly spinning out ideas on how to advance the law.”

Kohn has represented whistleblowers in the O.J Simpson murder case, World Trade Center bombing cases, Oklahoma City bombing case and Linda Tripp in her privacy case after the Clinton-Lewinsky scandal. He represented FBI whistleblower Frederic Whitehurst, who exposed fraud and fabrication of evidence in the forensic testing in the FBI lab in Washington D.C and subjected it to outside oversight for the first time. He also represented Aaron Westrick, another corporate whistleblower who pointed out that the bulletproof jackets for the police officers, supplied by US’ largest body armor company, whose weren’t exactly bulletproof.

On April 15, he argued as amicus curie or friend-of-the-court before the Ninth Circuit for Boeing’s former auditors who were fired after blowing the whistle on severe auditing deficiencies -- to the media. While SOX clearly covers disclosures made to federal agencies, there is ambiguity over whether it throws the same protection over disclosures made directly to the media. Kohn’s ability to fight this ground will not just decide the fate of these auditors but also the future of how much information is shared with journalists.

The lower court ruled against the auditors last year and “chipped away at the existing protection”—something he is trying to fix.

“My clients get the worst whack. They do significant public service but get left out in the cold. And they battle severe psychological repercussions for a lifetime. Who’s going to hire you after you are tagged a whistleblower?” asks Kohn, pointing to the heavy handed bargaining position companies come with, in these lawsuits and the personal ruin most whistleblowers are left with in the aftermath. “I have some clients who landed on their feet but it is extremely hard.”

But these people remain the most effective way of busting wrongdoing. In 2007, the National Business Ethics Survey found that 56 percent of employees, who witnessed fraud or misconduct at work, took at least one step in reporting it. A 2010 Global Fraud Study Association of Certified Fraud Examiners found that employee “tips were by far the most common detection method” catching thrice as many frauds.

For that reason, Kohn argues for financial incentives in every whistleblower law. And the lawmakers are slowly swaying on his side, creating what has now become the phenomenon’s biggest criticism. These fraud-busters have now hit paydirt. A February 8 story by CNBC said that the government received $2 million in settlements from 43 whistleblower cases in 1988– called ‘qui tam’ in legal speak -- and paid over $97,000 to the whistleblowers for their service in uncovering it. By 2010, this number has risen 13 times to 573 cases that garnered $2.3 billion for the government with a payout of over $385 million for the tipsters. SEC estimates it will receive 30,000 tips this year as a result of new provisions and more stringent protection under Dodd-Frank.

Such dogged whistle-blowing are making critics question if Kohn is really a do-gooder or is he systematically spawning a cottage industry of bounty hunters?

“I hope I do!” said Kohn. “Greed is good. What’s wrong with that? If they help in catching corporate frauds and save lives and billions in taxpayers’ money, then hail the bounty hunters…,” he says in his no-mincing-the-words, slow but authoritative tone that would serve him well in a courtroom.

He is now seeking a wider audience for his unapologetic, borderline-activist, stance on taking down big corporations and exposing government departments. In his recently published book, The Whistleblowers Handbook – the first-ever step-by-step consumer guide on blowing the lid – he dishes out a cookbook-style receipe detailing 21 rules on how and who to blow the whistle to. It even has “beware” sections that warn you against trusting corporate hotlines and taking “hush money”. 

 

Even though stiff laws were created after economic catastrophes – SOX came after Enron, Dodd-Frank after the 2008 financial meltdown – the cases of these tipsters could be navigating muddy moral waters. Sometimes, it could just be a false alarm that could jar a smooth running, efficient corporation.  

 On March 14, French automaker Renault SA’s chief executive Carlos Ghosn had to publicly apologize for firing three executives after an anonymous tip accused them of negotiating a bribe. The hurried investigation eventually produced no evidence – a telling sign of how whistleblower activism can tip to the other end, prosecute innocents and possibly encourage corporate espionage. Now that is a long journey from the time they were called “skunks at the picnic”.

These tax snitches are today viewed as gatekeepers of corporate conscience. The mindset and trend has already gone viral across corporate America. That is a job well done. And with a body of work that spans a quarter of century in this, Kohn can lay claim to a somewhat largish piece of it.