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Mutual fund employees at publicly-traded companies are not covered by federal whistleblower laws, the First Circuit Court of Appeals ruled on Friday.
In a case of first impression, the First Circuit overturned a lower court's decision to apply the Sarbanes-Oxley Act to private company advisers that contract with public companies.
The case involved two former Fidelity Investments employees who claimed that they were punished by their employer for alleging fraudulent practices at the company.
Fidelity argued that the employees weren't covered by Sarbanes-Oxley since it is not a publicly traded company that Congress intended the Act to cover.
The lower court had ruled that the Act did apply to the plaintiffs' since the investment firm is a contractor to the mutual funds, which have public shareholders.
Various government agencies split on their support. Both the U.S. Securities and Exchange Commission and the Department of Labor filed briefs supporting the plaintiffs, while the U.S. Chamber of Commerce supported Fidelity's argument, according to The Boston Globe.
Overturning the lower court and giving no deference to the agencies' positions, the First Circuit decided that applying the Act to private contractors would be an "impermissible end run" around Congress's decision to limit whistleblower protection, comparing its provisions to other Acts which specifically dealt with contractors.
Although the dissent argued that the First Circuit's interpretation would leave a significant class of potential securities-fraud whistleblowers vulnerable, the majority countered that: "if we are wrong and Congress intended the term 'employee'...to have a broader meaning than the one we have arrived at, it can amend the statute."