Whistle Blowers And The Sarbanes-Oxley Act

Pete Mackey

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A former employee of McDonalds has filed a “whistle—blower” lawsuit against the company alleging misrepresentions relating to executive compensation in its 2007 proxy statement. The claim is brought under the whistle—blower protections provided by the Sarbanes-Oxley Act. That employee, Lisa Bridges, was the senior director of compensation and she claims in her lawsuit that she refused to certify the accuracy of the executive compensation because she knew they false. Her claims included allegations of non-disclosed payments for Tim Fenton, the McDonalds’ President of Asia Operations and Mike Roberts, former President of the company:

Bridges claims that McDonald's should have -- but didn't -- disclose that it had paid for two country club memberships for Tim Fenton, president of the company's Asian operations. The memberships in the two Asian clubs were worth nearly $3,000, the suit claims.

She also claims McDonald's misrepresented some of the $97,384 it paid for "home leave" trips for Asia-based Fenton and his family.

Amid other allegations, Bridges said McDonald's mischaracterized payments made to former president Mike Roberts, who was ousted in 2006. She claims McDonald's "disguised" more than $10 million it paid to Roberts as salary and incentive compensation, acting as if he was a "transitional employee" though he'd been terminated and was no longer providing services.

It will be interesting watching this case unfold. The whistle blower protection provided by the Sarbanes-Oxley Act is quite broad and, given that the act was only passed in 2002, there has been very little case law interpreting it. If it is interpreted broadly, a lot of upper level management throughout the United States industrial complex should be concerned.