Tyco Must Face Federal Whistle-Blower Claims, Court Rules
By Sophia Pearson – Mar 19, 2013
Bloomberg
Tyco Electronics Corp. must face federal whistle-blower claims brought by a former company accountant who alleges he was fired for disclosing fraudulent practices at the electronic parts maker, the U.S. Court of Appeals in Philadelphia ruled.
A lower court applied the wrong legal standard in analyzing claims of Jeffrey Wiest under the Sarbanes-Oxley Act, and it erred in requiring that disclosures to supervisors specifically relate to violation of a statute, a three-judge panel found. The law protects whistle-blowers who have a “reasonable belief” that an employer’s conduct violates securities law, the court said in a 2-1 ruling.
“This is a major victory for SOX whistle-blowers,” Stephen Kohn, an attorney for the National Whistleblowers Center, said in an e-mailed statement. “Employees performing their duties discover many corporate frauds and violations and then report concerns to their supervisor. Whistle-blower laws, such as SOX, would lose their effectiveness if this common form of raising reasonable concerns was not protected.”
The Whistleblowers Center filed court papers in support of Wiest, who worked in Tyco’s accounting office in Harrisburg, Pennsylvania, for 31 years. Wiest sued in July 2010 claiming the company fired him after he challenged attempts to process payments for extravagant parties.
Resort Expenses
In mid-2007, Wiest began questioning expenses that he said didn’t meet accounting standards. They included a $350,000 event at the Atlantis Resort in the Bahamas, $218,000 at the Venetian Resort in Las Vegas and a third costing more than $355,000 at the Wintergreen Resort in Virginia. Wiest expressed concern about Tyco’s treating event costs as business expenses instead of income for the guests, according to court papers.
The appeals court reversed the lower court’s dismissal of Wiest’s claims over the Atlantis and Wintergreen events. It upheld the dismissal decision on the Venetian event.
Tyco International Ltd. (TYC) split into three companies in 2007, creating Tyco Electronics, now known as TE Connectivity Ltd., and Covidien Plc. The split followed former Chief Executive L. Dennis Kozlowski’s conviction in 2005 on charges of securities fraud, grand larceny and falsifying business records.
Amy Shah, a spokeswoman for TE Connectivity, didn’t immediately return a phone call seeking comment on the ruling.
The case is Wiest v. Lynch, 11-4257, U.S. Court of Appeals for the Third Circuit (Philadelphia).
