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ARC: HELPING EMPLOYERS CONTEND WITH THE HEIGHTENED THREAT OF WHISTLE-BLOWERS

Tyco must face accounting whistle-blower claims: Appeals court

Tyco Whistle-Blower Claims

Tyco Electronics Corp., which is now known as TE Connectivity Ltd., must face whistle-blower claims brought by a former accountant who charges he was terminated in retaliation for pointing out improper accounting practices, says a federal appeals court, in overturning a lower court ruling.

Jeffrey Wiest had worked for 31 years in the Berwyn, Pa.-based Tyco's accounting department until his April 2010 termination, according to Tuesday's ruling by the 3rd U.S. Circuit Court of Appeals in Philadelphia in Jeffrey A. Wiest et al. v. Thomas J. Lynch et al. Mr. Lynch is Tyco's CEO and director.

For the last 10 years of his employment, Mr. Wiest was under a “high level of audit scrutiny” because of the well-known corporate scandal involving its former parent company, Tyco International, and its CEO, Dennis Kozlowski, said the ruling.

Among the incidents cited in the ruling, in mid-2008 Mr. Wiest refused to process a payment regarding an event Tyco intended to hold at the Atlantis Paradise Island resort in the Bahamas, “which was similar to a corporate party under Kozlowski's management that had drawn significant criticism,” said the ruling. Expenses for the $350,000 event included “mermaid greeters” and “costumed pirates/wenches” at a cost of $3,000 and hotel room rentals ranging from $475 to $1,000 per night, the ruling said.

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In addition, in late 2008 a request for approval of a $335,000 event at the Wintergreen Resort in Virginia, which he raised questions about, “lacked both sufficient documentation and proper approval from Tyco's CEO,” said the ruling.

Mr. Wiest charged that Tyco “became frustrated with his persistence in following proper accounting procedures,” and in September 2009, two human resources employees informed him he was under investigation for incorrectly reporting the receipt of two basketball game tickets in 2009; having a relationship with a co-worker 10 years earlier, and allegedly making sexually-oriented comments to co-workers. The lawsuit said after he learned of the investigation, his health declined and he went on medical leave. He was terminated seven months later.

Mr. Wiest filed suit in 2010, charging his discharge was in retaliation for his reports of improper expenditures in violation of Section 806 the Sarbanes-Oxley Act, which protects certain employers from discriminating against employees for reporting information they “reasonably believe constitutes a violation of one of several enumerated provisions relating to fraud and securities regulations.”

The appellate court said its 2-1 ruling that the lower court had applied the wrong legal standard in analyzing Mr. Wiest's claim. The facts concerning the Atlantis resort event “are sufficient to support a plausible inference that Wiest reasonably believed that Tyco's conduct would violate one of the provisions in Section 806 because he foresaw a potentially fraudulent tax deduction and misstatement of accounting records if he did not bring that information to the attention of his supervisors,” said the ruling.

The court also reversed the lower court's order ruling with respect to the Wintergreen event, concluding he “subjectively believed that the lack of the CEO's approval, which contravened internal control procedures, would violate one of the provisions enumerated in Section 806.”

The court said, however, that “Wiest cannot establish that his communications” relating to other alleged incidents “constituted protected activities.”

The case was remanded for further proceedings.

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