WASHINGTON -- The Supreme Court on Tuesday expanded
protections for whistle blowers covered by an anti-fraud law passed following
the collapse of energy giant Enron, ruling outside accountants, auditors and
lawyers cannot be fired or punished for exposing fraud.
The 6-3 decision will have an effect in the mutual fund and
financial services industries, the court said, because they rely heavily on
outside contractors and advisers.
The case before the court arose when two employees of a firm
that did research for the Fidelity family of mutual funds revealed the funds
were overstating expenses. They alleged that in some instances, Fidelity was
operating “veiled index funds” while collecting a fee as though they were
actively managed.
The two employees say they were reprimanded and ultimately
dismissed for having exposed this fraud. When they sued their employer under
the Sarbannes-Oxley Act, they lost when an appeals court ruled the law’s
protection for whistle blowers covered only employees of public firms, not
outside advisers and accountants.
In their appeal to the high court, they said this would
reimpose “the very code of silence”
that allowed massive frauds such as Enron to occur.
Justice Ruth Bader Ginsburg, speaking for the court, said
Congress meant to broadly protect whistle blowers who could expose wrongdoing.
It made no sense, she said, to think “a
Congress, prompted by the Enron debacle, would exclude from whistle-blower
protection countless professionals equipped to bring fraud on investors to a halt.”
Chief Justice John Roberts and Justices Antonin Scalia,
Clarence Thomas, Stephen G. Breyer and Elena Kagan agreed.
A dissent was filed by Justice Sonia Sotomayor who said the
law covered only “employees” of
public companies, not outside advisers. Justices Anthony Kennedy and Samuel
Alito agreed with her.
The whistle-blower provisions in the law protect those who
reveal frauds from retaliation, and they also allow them to receive a share of
money that is recovered if a fraud is exposed.
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