Defenses against a claim of Sarbanes-Oxley violations

On Behalf of | Dec 15, 2021 | Firm News |

To help avoid the perception of Sarbanes-Oxley violations, California organizations must maintain high ethical standards and transparent internal reporting practices. Despite best efforts and intentions, you may face SOX complaints about perceived violations. However, you may have several defenses available against claims.

According to Sarbanes-Oxley 101, the legislation contains several key provisions. They include:

  • Corporate responsibility for financial reports
  • Disclosure of the financial statements
  • Internal controls assessment

If an employee, vendor or other party believes you commit fraud in any of these areas, you may face an investigation and charges. You may only have weeks or months to prepare a successful defense, depending on the situation

Lack of jurisdiction

Only securities issuers and their affiliates fall under the purview of Sarbanes-Oxley. Domestic, publicly traded companies and their subsidiaries are subject to Dodd-Frank, not SOX. If your company does not meet the legislation requirements, the court may dismiss the charges.


Employees often report SOX violations to their superiors. Employees receive protection from employer retaliation under SOX Section 806.  If the organization terminates employment, they may file a complaint. The court might dismiss the case if you can prove the termination of employment was for reasons other than protected actions.

Reasonable belief

The employee must satisfy the requirement for “reasonable belief.” This means proving that any reasonable person with the same training, in the same circumstances, would believe the organization violated fraud or securities laws. If they cannot do so, the court may dismiss the complaint.

A complaint can result in a heavy blow to the organization’s reputation and employee morale. Understanding Sarbanes-Oxley financial requirements and whistleblower provisions are critical. It may help you mount an effective defense against claims.