Saturday, February 19, 2005
Compensation ordered for whistle-blower
The latest from The Ticker blog
David Welch won another round this week in a whistle-blower test case that has focused national attention on a small bank holding company based in the tiny town of Floyd.
In a ruling dated Tuesday, Stephen Purcell, an administrative law judge for the U.S. Department of Labor, ordered Cardinal Bankshares Corp. to reinstate Welch and pay him more than $64,830 in back pay and special damages.
Purcell also ordered Cardinal to pay more than $108,000 to cover the legal fees of Welch's attorney, Bruce Shine of Tennessee.
Welch and Shine have argued that Welch was fired because of concerns he raised about alleged financial wrongdoing at Cardinal Bankshares. They have said he should be protected from retaliation by Cardinal Bankshares through Sarbanes-Oxley Act whistle-blower provisions.
In an earlier ruling, Purcell agreed. But he delayed making his ruling final until after the calculation of back pay and other money owed by Cardinal to Welch and Shine.
Laura Effel, a lawyer in Roanoke with LeClair Ryan Flippin Densmore, said the board of directors for Cardinal Bankshares will decide whether to appeal Purcell's now-final order.
On Oct. 1, 2002, Cardinal Bankshares fired Welch, who had been the company's chief financial officer since February 1999. Cardinal Bankshares said it fired Welch because he refused to meet, without his own lawyer, with company officials, an attorney representing Cardinal, and an auditor with ties to the holding company who were said to be investigating concerns raised by Welch about specific accounting practices at Cardinal Bankshares.
Because Cardinal Bankshares, whose subsidiaries include the Bank of Floyd, is a publicly traded company, it is subject to the Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act, sired because of financial shenanigans at Enron, WorldCom and elsewhere, is intended to encourage timely disclosure of perceived corporate fraud.
Sarbanes-Oxley can protect a whistle-blower even if his or her allegations of wrongdoing prove to be unfounded later - as long as evidence suggests the whistle-blower had a reasonable belief that fraud was occurring or had occurred.
In January 2004, Purcell ruled in Welch's favor, concluding he was fired for actions protected under Sarbanes-Oxley, and was eligible for reinstatement and back pay. But Purcell's order of a year ago wasn't considered final until the parties came to terms about what Cardinal Bankshares might owe Welch in back pay and special damages.
Purcell's order this week provided those missing pieces. In separate interviews Friday, Effel, representing Cardinal Bankshares, Welch and Shine all said they felt the back pay and damage calculations were fair. Purcell ruled that Cardinal owed Welch $38,327.76 in back pay and $26,505.58 in special damages. He also ruled that Welch will be eligible for back pay until he is reinstated at Cardinal.
Cardinal Bankshares can appeal Purcell's Tuesday order to the Administrative Review Board of the Department of Labor or, if necessary, to the U.S. 4th Circuit Court of Appeals. If the case is accepted for review on appeal, Purcell's ruling won't be enforceable until the appeal is decided - with the exception of reinstatement, which both Effel and Shine said Welch can pursue in the interim.
Welch said Friday that he probably would return to Cardinal Bankshares. He acknowledged the climate there could be unfriendly but said he has determined, in prayer, that "if God opens the door at the bank, it is my obligation to go through."
Welch has been unemployed since May 2004, when his position with Buchanan Health Care in Grundy was eliminated. He had worked for Buchanan Health Care after being fired by Cardinal. Welch said the conflict with Cardinal Bankshares and national publicity about the whistle-blower case have hindered job search efforts.
"In the banking community, I can't even get an interview," Welch said.
He said financial pressures influenced a decision to sell a farm along the Blue Ridge Parkway near Meadows of Dan, where he and his wife previously lived. He said they rent a residence now near Huddleston and his wife continues to work as a bank examiner.
Welch said he does not regret sticking his neck out at Cardinal Bankshares just weeks after Sarbanes-Oxley became law. He said his wife recently told him, "Dave, the way you're made, you couldn't have done it any other way."
Welch added, "I didn't do anything to be a martyr or a hero or for publicity."
Effel said Friday that Cardinal Bankshares still believes it had the right to fire Welch and that his firing was not retaliation for allegations that might be protected under Sarbanes-Oxley. In early January, Leon Moore, president and chief executive officer of Cardinal Bankshares, wrote Purcell that "examiners found no merit to Welch's allegations of irregularities."
Shine said he is "operating under the assumption that Cardinal will appeal" Purcell's order of Feb. 15, a ruling he described as masterfully detailed.Sarbanes-Oxley Act
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The federal law, passed in 2002, emerged in the wake of corporate accounting scandals at Enron, WorldCom and others. It's designed to encourage quick disclosure of possible wrongdoings. And it offers protections to those who blow the whistle on companies, even if allegations later don't pan out.
