Research analyst Arturo Cifuentes filed a Sarbanes-Oxley complaint with OSHA last week alleging that his former employer, Wachovia Securities, attempted to influence and in some instances stop the publishing of fixed-income research reports.
The complaint, filed last Wednesday, alleges that Wachovia's "attempted influence was intended to coincide with firm deals and sales to its clients, as well as to please existing clients and potential clients," according to a written release from Malecki Law, which is handling the case on behalf of Cifuentes. The Dept. of Labor has 180 days to decide whether the complaint constitutes a Sarbanes-Oxley violation. The case can then move either to federal court or through arbitration, instead of or in addition to court proceedings.
Cifuentes referred all questions to his attorney.
"We feel he was retaliated against for reporting certain things," said Cifuentes' attorney Jenice L. Malecki. "Arturo is very interested in having an environment to work in which he feels he can be an independent research analyst and report what he feels would be appropriate." Malecki declined to discuss specifics in the complaint, calling it premature to do so.
While Malecki declined to release a copy of the complaint, Cifuentes reportedly alleges that Wachovia permitted compensation to its analysts be directly and/or indirectly influenced. Cifuentes, who was hired by Wachovia in July 2003 as a managing director and senior CDO analyst, alleges that his employment with Wachovia ended when "he and the firm reached an impasse relating to the interpretation of what is required and what would be truthful when filing a Regulation AC report," according to Malecki. The SEC's Regulation AC, which became effective in April of 2003, seeks to provide investors with a certification of accuracy in regard to an analyst's personal views and compensation sources.
Wachovia representative Christy Phillips said the company would not comment on personnel matters.
At Wachovia, Cifuentes reported to Brian Lancaster, managing director and head of structured products in the firm's fixed-income division. Cifuentes had been co-head of the structured-products group at Triton Partners, where he co-managed the $307 million CDO of CDOs fund Triton Opportunities Fund 1. Prior to Triton, Cifuentes was a managing director in Ambac Assurance Corp.'s CBO/CLO group. Cifuentes also played a large role in the development of the CDO rating methodology during his tenure at Moody's Investors Service.
Dealing with SOX complaints from the securities industry is as new for OSHA as it is to Wall Street. However, the agency has publicly addressed criticism by noting the Sarbanes-Oxley whistleblower provisions are similar to the other 13 whistleblower statutes that it administers. That said, it's far from a slam dunk to prove or disprove SOX allegations.
"In my experience, the tough part is whether the employee can prove that the specific employer action (demotion, termination, etc.) is the result of the whistle blow or other legitimate, performance related issues," said Mary Ellen Hogan, partner at McDermott Will & Emery LLP. Hogan is not tied to the Cifuentes case, but has amassed years of experience in the field of compliance with state and federal laws, including statutes administered by OSHA. "Often, employees who are on the margin as far as continued employment is concerned decide to blow the whistle about some perceived grievance and ride that train as far as they can," Hogan observed.
Sources expect OSHA to rely heavily on interpretations of statute Air-21 - the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century - which basically is a pilot's right to refuse to fly a plane if they feel it's unsafe.
OSHA has held sway over investigating "whistleblower" cases in the securities universe since the passage of 2002's Sarbanes-Oxley Act - title VII of SOX is the Corporate and Criminal Fraud Accountability Act of 2002. Between July 30, 2002 and April 2005, OSHA received 485 whistleblower complaints under SOX, of 386 investigations have been completed. According to an OSHA spokesperson, 58 were withdrawn, 282 were dismissed and 64 were found in favor of the complainant of which 49 were settled.
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