A Sarbanes-Oxley whistleblower is someone who reports a violation of the Sarbanes-Oxley Act (SOX) to the Securities and Exchange Commission. Anyone who has original information about a possible violation of Sarbanes-Oxley may be a SOX whistleblower.
For more information about the requirement for reporting violations to the SEC and whistleblower rewards, see our SEC whistleblower page.
Common SOX Violations
Congress passed the Sarbanes-Oxley Act in 2002 to protect shareholders from accounting fraud. SOX includes reforms to improve financial disclosures that corporations are required to make and ensure controls are in place to prevent accounting irregularities.
The sections of Sarbanes-Oxley that corporations most commonly violate include:
Section 401 of SOX
Prohibits material misstatements, untrue statements, or omissions on the company’s periodic financial reports, such as its annual report (10-K) or quarterly report (10-Q).
Section 404 of SOX
Requires companies to publish information in their financial reports on the scope, adequacy, and effectiveness of their internal controls over financial reporting. Companies must have an external accounting firm assess and report on the accuracy of the company’s assessment of its financial controls. An example of a financial control is restricting access to financially significant computer systems to only authorized personnel.
Section 409 of SOX
Requires companies to immediately report to the public any material changes to their financial conditions or operations.
Section 802 of SOX
Prohibits altering, destroying, concealing, or falsifying financial records.
SOX 301 Whistleblower
Under Sarbanes-Oxley Section 301, a company’s audit committee is required to establish formal whistleblower procedures to address complaints related to accounting or auditing.
Specifically, SOX 301 requires the audit committee establish procedures for:
- <span=”font-size:120%;”>External complaints: creating a system for handling and recordkeeping of complaints received from any outside source.
- <span=”font-size:120%;”>Internal complaints: creating a system, such as a whisteblower hotline (e.g., a 1-800 number), to enable employees to confidentially and anonymously report concerns about accounting or auditing practices.
Sarbanes Oxley Whistleblower Rewards
Sarbanes-Oxley whistleblowers are entitled to between 10 and 30 percent of any funds the SEC recovers as a result of their information.
The SEC has awarded over $111 million to whistleblowers in total since the inception of the whistleblower program, with an average whistleblower award of $3.3 million.
SOX Whistleblower Protection
The Sarbanes-Oxley Act, passed in 2002, protects employees of publicly traded companies who report securities violations to a federal agency, to law enforcement, to Congress, or internally, such as to a supervisor, to an internal hotline, or as part of an internal investigation.
Sarbanes-Oxley 1107 prohibits an employer from taking adverse action or <href=”https://www.classlawgroup.com/whistleblower/retaliation/”>retaliating against an employee for whistleblowing, which includes a prohibition on firing, blacklisting, or reprimanding the employee.
An employee who is terminated for whistleblowing is entitled to reinstatement and back pay, which includes all the income they would have earned during the period where they were laid off. Whistleblowers who are retaliated against are also entitled to special damages, such as for emotional distress and loss of professional reputation, and attorney’s fees.