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Whistleblower Sues Moody's for $15M in Defamation Suit

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By Jason Beahm on September 15, 2010 9:57 AM

It's easy to understand that a business isn't exactly thrilled when one of their own employees steps forward to alert authorities of company violations. But as an in-house attorney, you have a duty to balance the short term interests of the company with potential long term fallout for retaliating when a whistleblower sues.

A whistleblower is an employee reports company misconduct and legal violations, such as fraud or financial malfeasance. Whistleblowers are offered protections by a number of state and federal laws, therefore it is imperative that you ensure that your company does not violate the law when a whistleblower sues the business. Besides the obvious legal risks, a poorly handled whistleblower case can create a public relations nightmare.

A recent incident involving Moody's Corporation illustrates such a case. Eric Kolchinsky, a former Moody's analyst criticized the company after facing a demotion and suspension. Kolchinsky alleges the demotion came as a result to his complaints over illegal internal business practices. Kolchinsky is now suing Moody's and its CEO in a defamation suit.

Eric Kolchinsky, the former Moody's Corp. analyst who criticized the company after allegedly being demoted and then suspended for complaining internally about its practices, sued the firm, its credit-ratings unit and chief executive officer for defamation. Kolchinsky claims that Moody's was falsifying ratings information and committing securities fraud in the process.

Kolchinsky alleges that after his complaints, Moody's made false statements to "undercut his credibility and portray him as disgruntled, potentially unstable and unprofessional," according to the complaint in a civil suit filed today in federal court in Manhattan, Bloomberg reports. Kolchinsky, 39, is seeking at least $15 million dollar for damage to his professional reputation.

This case illustrates why it is important to have procedures in place to allow grievances to be raised internally, without fear of retribution by the company. In addition, once an employee has made such a complaint, it is imperative that the company follow all applicable whistleblower laws to avoid making an already bad situation exponentially worse.

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