A federal whistleblower law prohibiting retaliation against those who raise concerns about securities law violations does not protect employees who work overseas for U.S.-based companies, a U.S. appeals court ruled on Friday.
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A three-judge panel of the U.S. Court of Appeals for the D.C. Circuit unanimously rejected a bid by a former top Asia-based lawyer for Morgan Stanley to revive claims that he was pressured into resigning in 2016 after reporting alleged illegal activities, many of which occured outside of the U.S.
Christopher Garvey had argued that the Sarbanes–Oxley Act of 2002 (SOX), which protects workers who report securities violations, dually applies to securities fraud that occurs overseas but affects markets in the United States.
The D.C. Circuit disagreed, stating SOX’s whistleblower protections do not prohibit securities fraud, so any impact on the U.S. markets was irrelevant in applying the precedent. The panel further clarified that SOX created protections for employees, so the pivotal question is whether they are based in the United States.
The 1st Circuit in Boston and 2nd in New York came to the same conclusion in their rulings.
According to court filings, Garvey served as the executive director of a legal and compliance division for Morgan Stanley subsidiaries based in Japan and Hong Kong from 2006 to 2016, claiming he was expelled from his role after he reported alleged corruption and other violations to his superiors.
Following his departure, Garvey filed a SOX complaint with the U.S. Department of Labor against Morgan Stanley. Late last year, an administrative law judge ruled that SOX did not apply to overseas workers, and a review board agreed.
Garvey appealed to the D.C. circuit, contesting that whistleblower protections can apply when alleged legal violations impact U.S. markets.
In the 2010 case Morrison v. National Australia Bank, the U.S. Supreme Court held that “when a statute gives no clear indication of an extraterritorial application, it has none.”
The court on Friday said that applying Morrison, it was clear that SOX was not meant to extend to workers outside the country.
“There is nothing in SOX to indicate that it has an extraterritorial reach covering a person like Garvey, who was employed exclusively in the overseas operation of a foreign subsidiary of a U.S.-based corporation,” Circuit Judge Harry Edwards penned.
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