Mutual fund companies have traditionally argued that they are exempt from the whistleblower protections of the Sarbanes-Oxley Act (“SOX”) because the funds themselves do not have any employees. Massachusetts District Court Judge Douglas P. Woodlock soundly rejected that argument in a ruling issued March 31 and, in so doing, may have opened the door to a tidal wave of whistleblower suits against mutual fund companies.
The ruling came in response to motions to dismiss filed in two separate lawsuits brought by former employees of Fidelity affiliates. In each case, the former employees alleged that they were retaliated against in violation of SOX when they internally reported what they believed was unlawful conduct.
The Fidelity affiliates argued that, in order to be covered by SOX’s whistleblower protections, an individual must be an employee of a publicly traded company. Accordingly, their employees could not be covered by SOX because they are technically employees of the affiliates, which are privately held, rather than the funds themselves, which are publicly traded.
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