RICHMOND, Va. A fired bank executive who became the first person to win protection under a federal law that shields whistle-blowers, only to see his victory overturned, suffered another setback in a federal appeals court Tuesday.
A three-judge panel of the 4th U.S. Circuit Court of Appeals did not reinstate David Welch to his job, ruling that he failed to explain how his employer's alleged shoddy accounting practices could be considered a violation of federal law.
Welch was dismissed as chief financial officer of Cardinal Bankshares Corp. in 2002 after reporting what he said were misclassifications in financial reports that essentially overstated the bank's earnings by $195,000. Cardinal is the holding company for the local bank in Floyd, population about 400, in southwestern Virginia.
A federal administrative law judge ruled in 2004 that Welch should be reinstated under the Sarbanes-Oxley Act, enacted two years earlier in response to corporate scandals at Enron Corp., WorldCom Inc. and other companies. The law required more stringent accounting practices and offered protection to workers who point out violations.
Since Sarbanes-Oxley was signed into law, more than 1,000 self-professed whistle-blowers have come forward, and most have seen their cases rejected. Welch was the first to win his case before an administrative law judge, but that decision was reversed in June 2007 by the Department of Labor's Administrative Review Board.
The appeals court affirmed the board's decision, saying Welch "utterly failed to explain how Cardinal's alleged conduct could reasonably be regarded as violating any of the laws" covered by Sarbanes-Oxley.
Judge Diana Gribbon Motz wrote that Welch failed to support his arguments to the review board with relevant statements. For example, she said Welch relied on laws or regulations passed years after the financial reports were filed, as well as other regulations that do not fall within the purview of Sarbanes-0xley.
Welch, now an accounting professor at Franklin University in Columbus, Ohio, declined to comment, and his lawyer, Bruce Shine, did not immediately return a phone call seeking comment.
Leon Moore, president of Cardinal Bankshares, also did not immediately return a phone message.