If we needed any further evidence that Sarbanes-Oxley was of not much use to whistleblowers, it came last week when the first person to win whistleblower protection under SOX ended up losing his case.

In 2004, David Welch, the former CFO of Virginia bank Cardinal Bancshares, became the first person to win whistleblower protection under SOX. Welch claimed that the bank had sacked him after he raised questions about its accounting policies and internal controls. In June 2006, a Labor Department judge ordered that the bank reinstate him and restore pay and benefits. But the bank appealed, and did so successfully.

In its ruling, the Labor Department's appeals board ruled in favor of the bank, coming out with a totally legalistic interpretation. It said Welch's concerns about Cardinal misclassifying loans recoveries did not constitute protected activity because Welch could not have reasonably believed that Cardinal misstated its financial condition. Similarly, his complaints about internal accounting controls were not SOX-protected activity because they did not relate to federal securities laws. "Therefore, since Welch has not demonstrated that he engaged in protected activity, an essential element of his case, we DENY his complaint."

As CFO.com says, the case clearly demonstrates that whistleblowers cannot win under Sarbanes-Oxley. Welch's attorney Welch's attorney, D. Bruce Shine told the journal, that the Department's Administrative Review Board had taken a "very narrow view of what constitutes protected activity."

"They have elevated what an employee must believe to something greater than what the statute required".

This ruling will no doubt fuel demand for Sarbanes-Oxley to be re-written and made more whistleblower-friendly, something I have covered here.

But in the end, the law can only do so much. The best way to address the problem is for business organisations to start using whistleblowers for intelligence gathering. Treat them as an asset and adopt whistleblower best practice.