Jury Awards Whistleblower Over $25 Million in Sarbanes-Oxley Retaliation Case

In April, a Los Angeles County jury awarded $22.4 million in punitive damages (that was later reduced to $2.27 million) along with $2.7 million in lost past and future wages to Steven Babyak in a whistleblower retaliation and wrongful termination case against Cardiovascular Systems, Inc (CSI). Babyak, a former sales manager for the company, argued that he was retaliated against, culminating in termination, after making complaints about a hostile work environment and violations of the Anti-Kickback Act and securities laws under the Sarbanes-Oxley Act.

The Anti-Kickback Act prohibits the exchange of anything of value in an effort to reward referrals of business. This criminal violation is punishable on the first offense by a $25,000 fine or up to 5 years in prison. The Sarbanes-Oxley Act prohibits a publicly traded company, or any contractor or agent of such company, from retaliation against an employee who blows-the-whistle on what she reasonably believes to be a violation of statutes prohibiting mail fraud, wire fraud, bank fraud, securities fraud, any rule or regulation of the Securities and Exchange Commission (SEC), or any provision of Federal law relating to fraud against shareholders. Successful whistleblowers are entitled to recover their attorneys’ fees and costs under SOX.

In order to meet the whistleblower requirements of the Sarbanes-Oxley Act, the employee must have had a reasonable belief that the company has engaged in or will engage in conduct violating one of the enumerate categories of law and regulations, adverse action was taken against them, and that the employee’s reports were a contributing factor in the adverse action.

Babyak, the whistleblower, brought his concerns to his supervisors after the company implemented an illegal kick-back policy of referring patients to doctors only if the doctors purchased Cardiovascular Systems’ products. CSI performed an internal investigation but dismissed the case despite other employees’ corroboration of Babyak’s claims. In retaliation, Babyak’s supervisor transferred the whistleblower to a less desirable region and unfairly raised his sales quota.

During Babyak’s time as manager of the new region, he witnessed a “sale” of a large amount of products on the last day of the quarter in order to meet their sales quota. However, the sale was made under a prearranged agreement that the purchaser would return all of the products the next day. CSI is a publically traded company that must report to their shareholders, so this false sales information was correctly identified by the whistleblower as a violation of the statutes and laws enumerated under the Sarbanes-Oxley Act’s anti-retaliation provision. The whistleblower reported the violation to CSI’s regulatory department, after which, management told him to “get on the bus and move on.”

Within weeks of this complaint, CSI terminated the whistleblower, claiming they no longer had supervisors who were willing to work with him, despite Babyak’s former supervisor testifying in trial that they had not approached him about the issue and he would have been willing to work with Babyak again.

CSI has been part of a “corporate integrity agreement” since 2013 with the Department of Health and Human Services in which they must undergo compliance efforts due to a previous whistleblower case where an employee revealed that CSI was bribing doctors for the use of its products.

Despite the fact that this whistleblowers punitive damages award was reduced by the court, this case was still a great victory for whistleblowers who suffer retaliation for exposing fraudulent and illegal conduct. In addition to the Sarbanes-Oxley Act, there are many state and federal statutes that protect whistleblowers from retaliation for exposing wrongful conduct.

Individuals who believe they have been subjected to retaliation for blowing-the-whistle on illegal or unethical conduct should immediately clayton.wire@omtrial.com contact an attorney to learn more about their rights and options. For more information, please visit whistleblower-attorney.com.

Whistleblower attorney Clayton Wire encourages everyone to honor and appreciate the important role that whistleblowers play in our society. Please join him at ilovewhistleblowers.com for more information about the history of whistleblower statutes and National Whistleblower Appreciation Day. Also, please use #ilovewhistleblowers to share this information with other on social media.