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Whistleblowing and Sarbanes-Oxley

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Assignment 1 – Whistleblowing and Sarbanes-Oxley
Tialia Booth
LEG 500 – Law, Ethics, & Corporate Governance
Strayer University
Professor Lateefah A. Muhammad
July 20, 2015
Whistleblowing and Sarbanes-Oxley
Peter Buxtun. Linda Almonte. John Kopchinski. Edward Snowden. Everett Stern. J. Kirk McGill. The commonality in each of the individuals listed is that they have been identified as a whistleblower. This paper will review the key characteristics of a whistleblower, examine an example of whistleblowing from recent history, provide an opinion on whether or not such whistleblowing was justified by the individual, and finally review the current Sarbanes-Oxley Act to determine to what extent the individual was protected.
A whistleblower can be most basically defined as an individual or persons who report and make known unethical and illegal actions taken by their employer. The employer could be a publicly traded or privately held company or a not-for-profit organization. The whistleblower may choose to release their findings and information uncovered within their own company or to outsiders such as the news media, law enforcement officials, or federal regulators. In every case of a whistleblower coming forward there is a shared desire to stop the unethical and possibly illegal behavior or acts being committed and to ensure those who have been affected are identified and hopefully compensated or righted in some way (Halbert, Ingulli, & Frey, 2015).
In 2003 Keith Edwards began his career with banking and mortgage giant JP Morgan Chase. During his tenure with the company he worked as an assistant vice president in management of the bank's government insurance unit. As such his position held direct oversight into the insurance that the United States government provided for Federal Housing Administration (FHA) and Veterans affairs home loans. Edwards began his journey to becoming a whistleblower by informing his superiors and JP Morgan executives about inadequate documentation being received for home loans however no action was taken to rectify the situation and in 2008 Edwards was fired from the bank. In January of 2013 Edwards sued JP Morgan Chase under the False Claims Act and the federal government later joined suit (Chaudhuri, 2014).
A settlement was finally reached in February 2014 and the bank agreed to pay out over $600 million; Edwards portion of the settlement was disclosed to be $63.9 million and the bank agreed to admit wrongdoing for submitting mortgages to be guaranteed by insurance under the two government agencies knowing that the loans did not meet the qualifications for government backing. The bank has since agreed to make changes and better control and oversight and the payout helped to offset and rectify the many evictions and foreclosures experienced by those affected under the programs (Horney, 2014).
The False Claims Act is the law under which Edwards was able to sue the banking institution and effectively bring his whistleblowing actions to light. According to the Department of Justice, the Act was enacted in 1863 as a result of Congress desire to ensure that suppliers during the Civil War did not defraud the Union Army. There have been numerous amendments over the years to the Act and multiple interpretations by various federal courts. The act requires that the claim must be knowingly false; therefore the individual or persons are seeking to intentionally defraud the government. Edwards as the plaintiff was able to sue under the 'qui tam' theory which allows a private person to sue on behalf of the government (2011).
As an employee of JP Morgan Chase one could argue that Edwards’s duty of loyalty was first to the company to protect the company’s interest including that of its employees, shareholders, leaders, and more. However Edwards also realized his duty of loyalty to his country and to those individuals being directly affected by the banking institutions illegal and fraudulent practices. Essentially the bank allowed individuals to be qualified and placed in a program of having the government guarantee that they could be financially successful and pay for their home based on a variety of factors. When those same individuals were unable to keep up with the obligation the bank went through with the foreclosure process, evicted customers from and seized their homes, and then reaped the benefits of having the government cover the costs of such actions as well as the outstanding loan to the bank leaving them in a beneficial position where they experienced minimal lost and actually profited.
While the False Claims Act provided a basis under which the company could be sued, Edwards was not seeking compensation for nor made any claims that he was retaliated against when he was terminated from the company in 2008 and therefore no legal protection afforded to him under the Sarbanes-Oxley Act of 2002 better known as SOX. The Sarbanes-Oxley Act was signed into law in 2002 by then President George Bush. The Act was passed in the wake of the Worldcom scandal and was developed to ensure against corporate fraud and protect those that would bring to light misconduct and illegal activities by companies that are publicly traded (Halbert et al., 2015). The Act protects whistleblowers from retaliation that they may face as a result of coming forward; there are both civil and criminal penalties for employers or organizations that engage in any type of retaliation including but not limited to employment discrimination (such as demoting or firing), harassment, or constructive discharge. Because JP Morgan Chase is a publicly traded company, Edwards would have been entitled to immediate protection under the Act and could have had a potential claim regarding his eventual termination from the company in 2008.

References
Chaudhuri, S. (2014, March 7). J.P. Morgan Whistleblower Gets $64 Million. Wall Street Journal. Retrieved from http://www.wsj.com/articles/SB10001424052702304732804579425573000735420
Halbert, T., Ingulli, E., & Frey, M. A. (2015). Law and ethics in the business environment with readings from essentials of contract law. Mason, OH: Cengage Learning
Horney, B. (2014, March 7). JPMorgan Whistleblower Gets $64M in FCA Settlement. Law360 Website. Retrieved from http://www.law360.com/articles/516511/jpmorgan-whistleblower-gets-64m-in-fca-settlement
The False Claims Act: A Primer. (2011, April 22). Retrieved from http://www.justice.gov/sites/default/files/civil/legacy/2011/04/22/C-FRAUDS_FCA_Primer.pdf

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