By Thomas Brom

For his trouble, Olofson was put on paid administrative leave and subsequently terminated as part of a "planned" layoff. Global Crossing Ltd. filed for bankruptcy protection in January 2002, followed by a Securities and Exchange, Commission (SEC) investigation and a $1 billion earnings restatement. Left with a bankrupt entity, Olofson's lawyers then sued board chairman Gary C. Winnick and other former Global Crossing officers as individuals for alleged defamation and intentional and negligent interference with a contract. (Olofson v. Winnick, No. 1:03CV1185, 2/24/03, S.D.N.Y.)

"Sarbanes-Oxley had not been enacted when we filed the complaint," says Paul D. Murphy, managing partner at Murphy Rosen & Cohen in Santa Monica, who represents Olofson. "We relied on the common law to get what we want." In an unrelated case, an administrative law judge ruled in early 2003 that SOX cannot be applied retroactively. (Gilmore v. Parametric Technology Corp., DOL ALJ, No. 2003 SOX-0001, 2/6/03.) But that ruling is on appeal, and Murphy-facing a motion to dismiss in the Olofson case-says he's keeping his options open.

Like so many SOX provisions, section 806 (18 U.S.C. § 1514A) has become contested terrain for critics and defenders of public corporations. The statute prohibits a publicly traded company from discharging, demoting, suspending, threatening, harassing, or discriminating against an employee for reporting potentially fraudulent activities. It protects whistle blowers even if their report is incorrect, so long as they reasonably believed it to be true. Though administrative remedies are conventional "make whole" relief, section 806 claims carry enormous significance because they open the door to SEC and Department of justice (DOJ) investigations, securities class actions, and a new cause of action in federal court.

Last May the U.S. Department of Labor (DOL), which administers whistle-blower claims through the regional offices of the Occupational Safety & Health Administration (OSHA), released an interim final rule setting forth procedures for handling section 806 complaints. The regulation provoked strong reactions. Thomas Devine, legal director of the Government Accountability Project in Washington, D.C., calls OSHA "a black hole" for whistle blowers. "Cases go there and employees are left twisting in the wind, ignorant of the status or the agency's assessment of their complaints," Devine says. "It might as well be Kafka's The Trial."

The HR Policy Association, which represents human resources officers from more than 200 large private employers, wasn't happy with the final rule either. Daniel V. Yager, senior vice president and general counsel of the association, wrote in a July 28, 2003, letter to the DOJ, "If the Rule permits any employee to file a retaliation claim based on a mere difference of opinion regarding an employee's responsibilities related to the financial aspects of the employers business, there is a strong likelihood that virtually every employment dispute involving a public company could implicate securities laws and generate a Section 806 whistle-blower claim."

That's a polite way of saying that members of the association worry that spurious claims may be filed by disciplined or discharged employees for purposes of extortion. The minuscule penalties in the statute for a complaint found to be frivolous or in bad faith-an award of attorneys' fees "not exceeding $1,000"-appear to encourage that possibility.

But Eugene Scalia, co-chair of the labor and employment practice group at Gibson, Dunn & Crutcher in Washington, D.C., and a former solicitor for the DOL, says, "The feedback from management on the OSHA investigations so far is fairly favorable." Scalia estimates that about 140 claims have been filed under section 806 to date. "I am not aware of any evidence that the number of non-meritorious claims is either greater or less than for other whistle blower statutes," he says.

For corporate respondents, however, the explosiveness of fraud allegations-what Scalia calls "the case within the case"-may pressure companies to settle section 806 claims quickly. "Companies treat these complaints very carefully," he says, "since they conceivably involve securities violations that could bring SEC and DOJ investigations and lead to the departure of executives." In Gibson Dunn's newsletter, Scalia noted, "a company can prove that a complainant's understanding of an SEC rule was mistaken, and the allegation thus unwarranted, and yet still lose a Sarbanes-Oxley whistle blower case."

In the ongoing battle to contain section 806 complaints, employers recently won a federal district court ruling in New York that claims are covered by mandatory arbitration agreements. (Boss v. Salomon South Barney Inc., 263 F.Supp. 2d 684 (2003).) That ruling didn't sit well with plaintiffs attorney, Cliff Palefsky, a longtime foe of mandatory arbitration whose firm, McGuinn Hillsman & Palefsky in San Francisco, represents a number of section 806 complainants. "SOX is significant because it extends wrongful termination to whistle blowers who alert the public to fraud against shareholders," Palefsky says. "But if you blow a whistle that no one hears, you're not a whistle blower-you're a fool. You'd have to be out of your mind to file a claim."

Even Roy Olofson-who tried repeatedly to change Global Crossing's accounting procedures from within-might have second thoughts about blowing the whistle today. His actions inadvertently helped to bring down the company and provoked Winnick to denounce him publicly as an "extortionist." In testimony before a congressional committee in 2002, Olofson contended he was "just an officer of the corporation who was merely attempting to do his job." He is now working as a consultant while he looks for permanent employment.