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Other Recent Significant SOX Decisions (Part IV)

May 16, 2013

We continue today with our series of posts on important SOX decisions.

The ARB Holds That SOX Section 806 Has No Extraterritorial Application

The ARB ruled in a 3-2 en banc decision that Section 806 of SOX has no extraterritorial application. Villanueva v. Core Labs., NV, No. 09-108, 2011 WL 7021145 (ARB Dec. 22, 2011).

Villanueva, a Colombian national, was the CEO of Saybolt de Colombia Limitada (“Saybolt”), an indirect subsidiary of Core Laboratories (“Core”), a Dutch company whose securities are registered under the Securities Exchange Act and traded on the New York Stock Exchange. Core had an office in Houston, and Complainant alleged that Core controlled Saybolt’s business. Villanueva further alleged that he complained of a tax evasion scheme that violated Columbian law to Core executives located in Houston, and that they retaliated against him by, among other things, terminating his employment.

Villanueva filed a claim under Section 806 of SOX, which OSHA and an ALJ dismissed. The ARB affirmed the dismissal, principally relying on Morrison v. National Australian Bank, Ltd., 130 S. Ct. 2869, 2877 (2010), to evaluate whether Section 806 has an extraterritorial reach and to examine whether the fraudulent activity Villanueva reported would trigger an extraterritorial application of Section 806. The ARB was persuaded that Section 806 does not apply extraterritorially, noting that Section 806(a)(1) refers only to domestic securities laws, criminal laws and financial regulations, and is silent to its extraterritorial application. Likewise, the ARB found that Section 806 did not cover Villanueva’s claim because of the foreign nature of the alleged fraud. More specifically, the ARB ruled that dismissal was warranted because Villanueva did not show that Core’s U.S. accounting policy was fraudulent, identify any domestic financial statement that was fraudulent or otherwise point to a violation of U.S. law. But, in a footnote, the ARB stated that, in addition to considering where the fraud occurred (which was the driving factor in this case) the following should be considered: the location of the job and the employer; the location of the retaliatory act; and the nationality of the laws allegedly violated that the complainant was retaliated against for reporting.

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