Sharkey v. J.P. Morgan Chase & Co. et al

Filing 32

OPINION: re: 23 MOTION to Dismiss. Accordingly, Plaintiff adequately alleges conduct she reported to Defendants and that Defendants had knowledge of Sharkey's protected activity. Based on the conclusions set forth above, Defendants' motion to dismiss is denied. So Ordered (Signed by Judge Robert W. Sweet on 8/17/11) (js)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

--------x
JENNIFER SHARKEY,
10 Civ. 3824

Plaintiff,

OPINION

againstJ.P. MORGAN CHASE & CO., JOE KENNEY,
ADAM GREEN, and LESLIE LASSITER in
their official and individual
capacities,
Defendants.

-x
A P PEA RAN C E S:
Attorpey for Plaintiff
THOMPSON WIGDOR & GILLY LLP
85 Fifth Avenue
New York, NY 10003
By: Douglas H. Wigdor, Esq.

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ru.S'\;t=~-l·~N~
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l.

ARNOLD & PORTER LLP
399 Park Avenue
New York, NY 10022
By: Michael D. Schissel, Esq.
Lucy S. McMillan, Esq.

i',crRONICALLY FILED

: I ill)C
;!

fendants

'U t\1 FNT
if:

!lATE FfL{-'::.D:

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Sweet, D.J.

Defendants J.P. Morgan Chase & Co.

("JPMC"), Joe

Kenney ("Kenney"), Adam Green ("Green") and Lesl
("Lassiter")

(collectively,

Lassiter

"Defendants") have moved pursuant to

Federal Rules of Civil Procedure 12(b) (1) and 12(b) (6)

I

to

dismiss the Amended Complaint dated February 3, 2011 (the "AC"),
filed by Plaintiff Jennifer Sharkey ("Plaintiff" or "Sharkey").
Based on the conclusions set forth below, Defendants' motion to
dismiss is denied.

Prior Proceedings

On October 22, 2009, Sharkey filed a timely complaint
with the Occupational Safety and Health Administration of the
U.S. Department

Labor ("OSHA") alleging violations of the

Sarbanes Oxley Act of 2002, 18 U.S.C.
or "SOX").

§

1514

("Sarbanes-Oxley"

On or about April 12, 2010, OSHA issued its findings

and preliminary order dismissing her complaint.

Sharkey filed

her complaint with this court on May 10, 2010, alleging claims
under SOX.

1

The Defendants moved to dismiss the complaint.

The

Opinion and Order dated January 14, 2011 of this court (the
"January 14 Order") held that Sharkey engaged in a protected
activity under SOX when reporting with respect to a third party,
the Suspect Client, but that the illegal activity reported was
not adequately alleged in the original complaint.
WL 135026, at *4-8.

Sharkey, 2011

Plaintiff's state law breach of contract

claim was dismissed with prejudice, and Sharkey was granted
leave to replead her SOX claims.

Sharkey filed the AC on

February 14, 2011.

The AC alleges multiple occasions on which Plaintiff
reported her concerns of fraudulent and illegal activity on the
part of the Suspect Client to one or more of the Defendants.
(AC

~~

I, 17, 20, 26, 39, 40-41, 43-44.)

The AC contains twelve

paragraphs alleging that Sharkey believed the Suspect Client was
violating one or more of the enumerated SOX statutes
to money laundering (AC

~~

addition

1, 17, 20, 26-27, 36-38, 43-44, 52,

57), and thirty paragraphs and subparagraphs outlining the
factual basis that that gave rise to that belief (AC
25.g, 27.a 27.q., 28-37).

2

~~

25.a­

The Defendants filed the instant motion on the grounds
that (1) this court lacks jurisdiction because the newly pled
allegations in the AC were not contained in Sharkey's OSHA
complaint,

(2)

while the AC contains additional factual

allegations regarding the purported suspicious activities of
JPMC's client, it fails to state with any level of specificity
what it is she allegedly reported to JPMC supervisors that
constituted whistleblowing,

(3)

the AC does not meet the

pleading requirements of Ashcroft v. I

, 129 S. Ct. 1937

(2009) and Bell Atlantic Corp. v. Twombly, SSO U.S. S44

(2007)

because Sharkey still does not identify which statute enumerated
in SOX she believes JPMC's client violated, and (4) the AC fails
to allege that Defendants knew or should have known that she
engaged in protected activity because the AC fails to disclose
which purported communications or disclosures constituted her
alleged whistleblowing.

Defendants' motion was marked fully submitted on March
30, 2011.

Facts Alleged

3

Knowledge of the general facts of this case and the
prior proceedings is assumed.

The following allegations are

drawn from the Amended Complaint unless otherwise noted.

Shortly after Sharkey was assigned to the Suspect
ient's account, members of J.P. Morgan's compliance and

sk

management team contacted her to express concerns regarding the
Suspect Client's alleged involvement in illegal activities,
including mail fraud, bank fraud and money laundering.
20.)

(AC ~

Around the same time in the first half of 2009, the Office

of the Comptroller of the Currency, a bureau of the U.S.
Department of the Treasury conducted an audit of J.P. Morgan's
Northeast Region's Private Wealth Management group and J.P.
Morgan's compliance with Know Your Customer ('KYC,)l
requirements.

rd. ~20.)

The AC alleges that upon information

and belief, "OCC's investigation and audit was focused in great
part on the Suspect Client, several Private Wealth Management
accounts that the Suspect Client created, and J.P. Morgan's
compliance - or lack thereof - with respect to KYC requirements
on these accounts,"

rd.

~

21-22) ,

As Plaintiff describes, "KYC is a policy implemented by banks to
conform to a Customer Identification Program . . . mandated by the Bank
Secrecy Act, Title III of the USA PATRIOT Act, and federal regulations to
prevent,
ia money laundering and terrorist financing."
(AC ~ 44
(citing 31 CFR 103.121).}

4

Sharkey alleges that she learned that the Suspect
Client "should not have opened an account under Private Wealth
Management, where oversight is less stringent ff as he had (id. ~
23a), and that "[p]rior attempts by others to ensure compliance
with KYC requirements for the Suspect Client were either never
completed or met with avoidance and/or obfuscation.ff
23c.)

Id. ~

Sharkey could not determine the source of the Suspect

Client's wealth, "which combined with the fact that most of his
accounts and/or businesses involved a heavy cash flow, raised
serious concerns of potential money laundering. ff

Id. ~ 23e.)

Sharkey was further aware of "allegations that the Suspect
Client, through a prior corporation, was involved in the
unexplained disappearance of millions

dollars of

product

that was the basis for his purported legitimate business."
~

23f.)

Id.

The Suspect Client had financial ledgers that did not

correspond with the company's financial statements, and he
purchased products from a company controlled by one or more of
his brothers (also signatories on various Suspect Client
accounts), at high prices

undocumented transactions,

transferring and advancing funds and products to this company
without collecting for long periods.

5

Id.

The AC alleges that Plaintiff "believed that the
Suspect client was engaging in fraud, money laundering, mail
fraud, bank fraud, and/or federal securities laws violations,
based on" based upon the following allegations:

• The Suspect Client, when he would provide requested
documentation, would use unusual or suspicious
identification documents that could not be readily
verified, such as foreign passports or documents in foreign
languages.
rd. ~ 27a.)
• The Suspect Client refused to provide complete information
about the nature and purpose of its business, anticipated
account activity, prior banking relationships, the names of
its officers and directors, or information on its business
locations, or tax returns.
rd. ~ 27b.)
• The Suspect Client would make frequent or large
transactions with no record of past or present employment
experience.
rd. ~ 27c.)
• Some of the Suspect Client's accounts, at times, acted as a
trust or shell company, and the Suspect Client was
reluctant to provide information on controlling parties
and/or signatories on these accounts.
rd. ~ 27d.)
• The Suspect Client
ther refused or was reluctant to
provide Plaintiff with information needed to complete the
mandatory KYC report.
(rd. ~ 27e.)
• Funds trans
activities in the Suspect Client's accounts
were unexplained, repetitive, and/or would show unusual
patterns.
(rd. ~27f.)
• Payments or receipts with no apparent links to legitimate
contracts, goods, or services would be received in the
Suspect Client's accounts.
(rd. ~ 27g.)
• Funds transfers would be sent or received within and
between the Suspect Client's own accounts.
rd. ~ 27h.)
• Unusual transfers of funds would occur among the Suspect
Client's related accounts or among accounts that involved
the same or related principals.
(rd. ~ 27i.)
• The Suspect Client would secure loans or margins by
deposits or other readily marketable assets, such as
securit
rd. ~ 27j.)
6

• The Suspect Client was involved in potentially higher-risk
activities, including activities that may be subject to
export/import restrictions.
rd. ~ 27k.)
• Plaintiff was unable to obtain from the Suspect Client
sufficient information to positively identify originators,
beneficiaries and/or signatories of accounts.
(rd. ~ 271.)
• Payments to or from the Suspect Client's accounts and/or
companies would have no stated or legitimate business
purpose.
rd. ~ 27m.)
• The Suspect Client's transacting businesses, although not
similar in their lines of business, would share the same
address and/or exhibited other address inconsistenc
such as not in fact maintaining an office where one was
listed.
(rd. ~ 27n.)
• The Suspect Client maintained accounts and transacted
deposits through multiple branches of J.P. Morgan across
various geographical areas.
(rd. ~ 270.)
• The Suspect Client established mUltiple accounts in various
corporate or individual names that lacked suffi ent
business purpose for the account complexities and/or
appeared to be an effort to hide the beneficial ownership
from J.P. Morgan.
rd. ~ 27p.)
• The Suspect Client would maintain several accounts with a
zero balance, but would refuse to
low them to be closed.
(Id. ~ 27q.)

Sharkey alleges that Suspect Client set up an account
in the name of a law firm, which she was told was established as
an escrow account to hold licensing fees associated with one of
the Suspect Client's businesses.

(rd.

~

28.)

However, Suspect

Client would trade securities in and from this account and would
wire transfer the proceeds from the trade to personal checking
accounts maintained by the Suspect Client at various J.P. Morgan
commercial branches, without authorization or knowledge of the
law firm.

rd.

~

29.)

Under this same account, the Suspect
7

million dollars worth of securities on

Client purchased seve
margin

l

i.e'

l

(Id. ~ 30.)

on a loan from J.P. Morgan.

s that she inquired with "established

Plaintiff all

figures in the business area that the Suspect Client was
involved" but none of them had heard of the Suspect Client or
his businesses.

Id. ~ 31.)

iff learned that one of the

Suspect Client's businesses

t in merchandise from Columbia

I

a nation with which she states J.P. Morgan was not supposed to
transact any business.

Id. ~ 32.)

Suspect Client established a

limited liability corporation wi

to two properties in

Westchester, New York, but never provided

l

despite Plaintiff/s

repeated requests, corporate formation documents, property
deeds, purchase contracts, mortgage documentation, tax returns,
or necessary proof of income.

Id. ~ 33.)

Suspect Client's son

requested that J.P. Morgan, through Ms. Sharkey, provide a
mortgage for his primary residence located at one those
addresses, but the Suspect Client and his son refused to provide
documentation to secure the mortgage

, on one or more

occasions, provided Plaintiff with suspect and potentially false
documentation regarding proof of income, result
denying the request.

(Id.

~

Suspect Cl

34.)

in Plaintiff
IS

son suggested

Plaintiff issue him a loan secured against a high balance
8

account maintained by his father,
account discussed above.

such as the law firm escrow

Id. ~ 36.)

Plaintiff further alleges that the Suspect Client's
"attempts to avoid or hinder Ms. Sharkey's efforts to conduct
her investigation and/or comply with KYC requirements, which are
inte~

in turn requirements mandated by,

alia, the Bank Secrecy

Act, the USA PATRIOT Act, and/or other federal securit
constituted additional violations

laws,

law for which J.P. Morgan

and its shareholders could be liable if it is proven that J.P.
Morgan condoned or was complicit in avoiding KYC requirements."
(Id.

~

37.)

Sharkey maintains that she communicated her complaints
regarding the illegal and/or suspicious activities alleged above
to Kenney, Green and Lassiter over an extended period of time
(id. ~ 39.), by way of e-mail, telephone calls, telephone
conferences, and in-person meetings.

The 12(b) (1)

(Id.

~

40.)

& 12 (b) (6) Standards

A case may be dismissed for lack of subject matter
jurisdiction under Rule 12(b) (1)

"when the district court lacks
9

the statutory or constitutional power to adjudicate it."
Makarova v. United States, 201 F.3d 110, 113

(2d Cir. 2000)

A

plaintiff bears the burden of proving by a preponderance of the
evidence that jurisdiction exists. Id.; see also Malik v.
Meissner, 82 F.3d 560, 562

(2d Cir. 1996).

On a motion to dismiss pursuant to Rule 12, all
factual allegations in the complaint are accepted as true, and
all inferences are drawn in favor of the pleader. Mills v. Polar
Molecular Corp., 12 F.3d 1170, 1174

(2d Cir. 1993). The issue

"is not whether a plaintiff will ultimately prevail but whether
the claimant is entitled to offer evidence to support the
claims." Villager Pond,
(2d Cir. 1995)

Inc. v. Town of Darien, 56 F.3d 375, 378

(quoting Scheuer v. Rhodes, 416 U.S. 232, 235-36

(1974)).

To survive a motion to dismiss pursuant to Rule
12 (b) (6),

"a complaint must contain sufficient factual matter,

accepted as true, to 'state a claim to relief that is plausible
on its face.'" Ashcroft v. Iqbal,
1949 (2009)
570

(2007))

-- U.S.

--, 129 S. Ct. 1937,

(quoting Bell Atl. Corp. v . Twombly, 550 U. S. 544,
Plaintiffs must allege sufficient facts to "nudge[]

their claims across the line from conceivable to plausible."
10

Twombly

1

550 U.S. at 570. Though the court must accept the

factual allegations of a complaint as true

l

it is "not bound to

accept as true a legal conclusion couched as a factual
allegation. 1I Iqbal

l

129 S. Ct. at 1949 (quoting Twombly 1 550

U.S. at 555).

The Court Has Jurisdiction Over the Facts Alleged in the Amended
Complaint

"Before an employee can assert a cause of action in
federal court under the Sarbanes Oxley Act

l

the employee must

file a complaint with [OSHA] and afford OSHA the opportunity to
resolve the allegations administratively.1I
Financial

Willis v. Vie

Inc., No. 04 Civ. 436 1 2004 WL 1774575 1 at *6

----------.~--~~-----

(E.D.Pa. Aug. 6

1

2004)

(citing 18 U.S.C.

§

1514 (b) (1) (A)).

"A

person who alleges discharge or other discrimination by any
person in violation of [Section 806] may seek relief

.

. if

[OSHA] has not issued a final decision within 180 days of the
filing

the complaint and there is no showing that such delay

is due to the bad faith of the claimant

1

at law or equity

the appropriate district

de novo review

court of the United States .

II

[by] bringing an action

18 U.S.C.

§

1514A(b) (1) (B) .

"[A] federal court can only conduct a de novo review of those
11

[SOX whistleblower] claims that have been administratively
exhausted.

11

6958 / 2005 WL 6328596
!II);

at *6 (S.D.N.Y. June 23 / 2005)

1

see also Lebron v. Am. Int'l

Inc"

("Fraser

No. 09 Civ. 4285

2009 WL 3365039, at *7 (S.D.N.Y. Oct. 19 1 2009)

("Under section

ction over SOX whistleblower

1514A, OSHA has exclusive j
claims for 180 days.") .

According to Defendants, the new factual allegations
set forth in Paragraphs 25-36

the AC deprive the court of

jurisdiction, as these facts were not contained in Sharkey's
OSHA complaint.

For this proposition they cite Fraser II 2005

WL 6328596, at *6; Trusz v. UBS Real
Civ. 268, 2010 WL 1287148
("[A]ll facts raised in a
be presented to OSHA

I

1

at *4

sox

Investors

LLC , No. 3:09

(D. Conn. Mar. 30, 2010)

claim in

court must first

so that OSHA can adequately fulfill its

statutory and regulatory review obligations.") i and Willis v.
Vie Fin.

Inc., No. Civ. A. 04-435 1 2004 WL 1774575, at *3

------~~--=-~-----

(E.D. Pa. Aug. 6, 2004)

("Before an employee can assert a cause

of action in federal court under the Sarbanes Oxley Act, the
employee must file a complaint with [OSHA] and afford OSHA
opportunity to resolve the allegations administratively.") .
(Def. Mem. 6-7.)
12

1

According to Sharkey, the allegations in paragraph 25
of the AC, including all subparts, are simply more detailed
recitations of the allegation in paragraph 12 of the OSHA
complaint and are an extension or amplification of paragraph 13
of that complaint.

. Mem. in Opp. 13.)

Plaintiff contends

that these allegations are reasonably related to the OSHA
charges under EEOC precedents and that therefore jurisdiction is
not defeated.

In Fraser I, upon which Defendants rely, the
defendants argued that the court did not have jurisdiction over
claims against the individual

fendants as well as a distinct

claim of retaliation based on protected activity contained
within a "confidential memo," because that allegation was not
raised before OSHA. Fraser I, 2005 WL 6328596, at *6.

The

"confidential memo" claim was a part of the first of plaintiff's
four separate instances of alleged protected activity. Id.
F~aser

I, the court found that "[tJhe part

In

have not submitted

Plaintiff's original OSHA complaint, and plaintiff has failed to
allege (or persuasively argue) that he has satisfied Section
806's exhaustion requirement with respect to his claims against
the Individuals Defendants, or with respect to claims arising
13

out of the Confidential Memo," id., but proceeded to assume
j

ance of

sdiction over the remaining portion of the first

protected activity as well as the entirety of the second, third,
and fourth instances. Id. at *7 *9.

After the plaintiff was granted leave to amend
compl

to cure deficiencies

his claims in Fraser I,

defendants again moved to dismiss.
Fiduci

s

Accordingly, in Fraser v.

Trust Co. Int'l, 417 F. Supp. 2d 310

(S.D.N.Y. 2006)

(ftFraser II"), the court had the opportunity to consider the
plaintiff's four instances of all

protected activity,

including the sub-instance regarding the ftconfidential memo."
Noting that it now had the opportuni

to review the

ftconf

memo," the court went on to assume jurisdiction

over the ft

idential memo" claim.

Id. at 322, 325.

thereafter ruled on the substantive I

The court

sufficiency of that

claim, finding that it did ftnot rise to the level of
whistleblowing and [is] more reflective
complaints

[d]efendants did not

advice." Id. at 322, 325.

[plaintiff's]
low his investment

The Fraser court's ultimate

jurisdictional decision, then, supports

14

aintiff.

Investors, No. 3:09 Civ. 268,

In Trusz v. DES Real

2010 WL 1287148 (D. Conn. Mar. 30, 2010) and Willis v. Vie Fin.
Grp., Inc., No. Civ.A 04-435, 2004 WL 1774575 (E.D. Pa. Aug. 6,
2004), both cited by the Defendants, the courts were essentially
presented with the question as to whether the SOX exhaustion
requirement "precludes recovery for a discrete act of
retaliation that arose after the filing of the Administrative
Complaint but was never presented to the administrative agency
for investigation."

Willis, 2004 WL 1774575, at *1.

In each

case, the plaintiff alleged in his federal action an additional
act

retaliation (termination) after the filing of his OSHA

complaint.

In Willis, the plaintiff failed to amend his

administrative complaint to allege the later claim
retaliatory termination, and thus he was "precluded from
pursuing his retaliatory termination claim in [Federal] Court,"
but permitted to pursue his claims of retaliation based on an
earlier threat of termination and the loss of job
responsibilities. Id. at *6 7.

Conversely, in Trusz, the

plaintiff filed an amended complaint before OSHA, alleging new
acts of retaliation as well as his termination, which occurred
after the filing of the original OSHA complaint.
1287148, at *3.

The court denied

Trusz, 2010 WL

fendants' motion to dismiss

for lack of subject matter jurisdiction because Trusz "waited
15

the requisite 180 days from filing of his initial complaint, and
OSHA divested itself of jurisdiction over his claim, Trusz has
fulfilled the jurisdictional prerequisites for this Court to
hear his federal SOX claim." Trusz, 2010 WL 1287148, at *3 5.
In the instant action, there is no adverse employment action
that arose after the filing of Plaintiff's OSHA Complaint or was
not pled in it that Plaintiff seeks to complain of before this
court.

The appropriate inquiry under SOX is not whether every
fact forming the basis for the belief that gave rise to a
plaintiff's protected activity was previously administratively
pled, but whether each separate and distinct claim was pled
before the agency.2

The cases cited by Defendants act upon the

assumption that such is the case.

See Willis

t

2004 WL 1774575

(finding claim of "discrete act of retaliation" not pled before
OSHA defeats jurisdiction over that claim in federal suit)

i

Trusz, 2010 WL 1287148 (wrongful termination claim pled
amended OSHA complaint creates jurisdiction) i Fraser I, 2005 WL
6328596, at *6

(distinct claim of retaliation based upon

To assert a prima facia claim under SOX, a claimant must show that: (i)
she engaged in protected activity; (ii) the employer knew of or suspected,
actually or constructively, the protected activitYi (iii) she suffered an
unfavorable personnel action; and (iv) circumstances exist to suggest that
the protected activity was a contributing factor to the unfavorable action.

2

29 C.F.R.

§

1980.104 (b) (1).

16

communication in confidential memo).

Defendants cite no

authority holding that jurisdiction is improper over allegations
amplifying the factual basis for an employee's belief that
illegal conduct was occurring in a SOX case or other analogous
context.

Moreover, a refusal by this court to consider the
facts alleged in the AC would be inappropriate as "no particular
form of complaint" is required to trigger a
29 C.F.R.

§

aim before OSHA,

1980.103(b), and the heightened pleading standards

of this court do not apply to

sox

claims filed there.

See

Sylvesterv. Paraxel, ARB No. 07 123, ALJ Nos. 2007 SOX-039, ­
042, slip op. at 12-13 (May 25, 2011)

(en bane)

heightened pleading standards to no apply to
initiated with OSHA)

sox

(holding
claims

.3

Accordingly, where Plaintiff's claims, including
specific adverse employment actions, protected activity, and the
general nature of the facts that formed Plaintiff's belief in

The Department of Labor has explained that "OSHA believes that it would
be overly restrictive to require a complaint to include detailed analyses
when the purpose of the complaint is to trigger an investigation to determine
whether evidence of discrimination exists." Department of Labor Rules and
Regulations: Procedures for the Handling of Discrimination Complaints under
Section 806 of the Corporate and Criminal Fraud Accountability Act of 2002,
Title VIr of the Sarbanes-Oxley Act of 2002, 29 C.F.R. 1980, 69 Fed. Reg.
52104, 52106 (Aug. 24 2004).

17

violations of the enumerated statutes giving rise to the
protected activity, were timely presented in her OSHA Complaint

I

and where more specific allegations naturally originating from
those assertions have been alleged in the AC in direct response
to this Court's decision to grant Plaintiff leave to do

SOl

the

entirety of the AC is appropriately subject to the jurisdiction
of this Court. 4

A Claim Under The Sarbanes-Oxley Whistleblower Provision Has
Been Stated

The whistleblower provision of SOX provide, in
relevant part:
No company with a class of securities registered under
section 12 of the Securities Exchange Act of 1934
or that is required to file reports under section
That jurisdiction is proper here is additionally affirmed by analogy to
Title IIV case law, under which failure of this court to consider the
additional facts pled in the AC would constitute reversible error.
See Jute
v. Hamilton Sundstrand Corp., 420 F. 3d 166, 177 78 (2d Cir. 2005) (reversing
lower court for its decision not to consider related adverse employment
actions not pled in EEOC charge and noting that the circuit has recognized
~\that claims that were not asserted before the EEOC may be pursued in a
subsequent federal court action if they are reasonably related to those that
were filed with the agency. '" (quoting Legnani v. Alitalia Linee Aeree
Italian~. P .A., 274 F. 3d 683, 686 (2d Cir. 2001)
(per curiam)). The scope
of an action under Title VII has ~generally been construed to be limited not
to the words of the charge but to the scope of the [administrative]
investigation which can reasonably be expected to grow out of the charge of
discrimination." Smith v. Am. President Lines, Ltd., 571 F.2d 102, 108 n.10
(2d Cir. 1978) i Sanchez v. Standard Brands, Inc., 431 F.2d 455 (5th Cir.
1970) ("the specific words of the charge of discrimination [before the EEOC]
need not presage with literary exactitude the judicial pleadings which may
follow").
Sharkey's additional allegations are encompassed in the scope of
the investigation that could reasonably be expected to grow out of her
administrative complaint.
Indeed, Plaintiff does not make additional claims
before this court, only amplifies factual allegations for claims
administratively pled.

18

15 (d) of the Securities Exchange Act
.
or any
officer l employee.
. or agent of such company may
discharge
demote
suspend l threaten l harass
or in
any other manner discriminate against an employee in
the terms and conditions of employment because of any
lawful act done by the employee
(1) to provide
information l cause information to be provided l or
otherwise assist in any investigation regarding any
conduct
which
the
employee
reasonably
believes
constitutes a violation of section 1341 [mail fraud]
1343
[wire
fraud]
1344
[bank
fraud]
or
1348
[securities fraud]
any rule or regulation of the
Securities and Exchange Commission l or any provision
of Federal law relating to fraud against shareholders
when the information or assistance is provided to or
the investigation is conducted by (C) a person with
supervisory authority over the employee (or such
other person working for the employer who has the
authority to
investigate l
discoverl
or
terminate
misconduct) .
I

I

I

I

I

I

I

I

I

I

18 U.S.C.

§

1514A(a).

To assert a whistleblower claim under SOX
must show that:

I

Sharkey

(i) she engaged in protected activity;

employer knew of the protected activity;

(ii) the

(iii) she suffered an

unfavorable personnel action; and (iv) circumstances exist to
suggest that the protected activity was a contributing factor to
the unfavorable action.

See Fraser III 417 F. Supp. 2d at 322

(quoting Collins v. Beazer Homes USAI Inc' l 334 F.Supp.2d 1365

1

1375 (N.D. Ga. 2004».

Defendants contend that the AC

Is to allege which

statute Plaintiff believed the Suspect Client violated l that it
19

fails to allege protected activity because it does not specify
the illegal conduct Plaintiff allegedly reported to Defendants,
and that J.P. Morgan did not know that Plaintiff engaged in a
protected activity.

The two latter arguments will be addressed

together.

A. The AC Adequately Alleges Violations of Enumerated SOX
Statutes

In order to state a whistleblower claim under SOX,
"[a] plaintiff need not show an actual violation of the law, nor
must a plaintiff cite a particular statute that he believed was
being violated."

Mahon~y

v. Keyspan Corp., No. 04 Ci v. 554,

2007 WL 805813, at *5 (E.D.N.Y. Mar. 12, 2007)

(citing Collins,

334 F. Supp. 2d at 1375) i see also Fraser II, 417 F. Supp. 2d at
322 (demonstration

violation of law not necessary).

Instead,

"SOX protects employees who provide information which the
employee 'reasonably believes constitutes a violation' of any
SEC rule or regulation or 'Federal law relating to fraud against
shareholders. "' Fraser II, 417 F. Supp. 2d at 322
U.S.C.

§

1514A(a) (1».

20

(citing 18

In assessing the reasonableness of a plaintiff's
belief regarding the illegality of the particular conduct at
issue, courts look to the "'basis of knowledge available to a
reasonable person in the circumstances with the employee's
training and experience.'"

Mahoney v. Keyspan Corp., No. 04

Civ. 554, 2007 WL 805813, at *5 (E.D.N.Y. Mar. 12, 2007)
(quoting Lerbs v. Buca Di Beppo, Inc., 2004-S0X-8, 2004 DOLSOX
LEXIS 65, at *33-34

(Dep't Labor June 15, 2004)).

The

legislative history of SOX provides that the reasonableness test
"is intended to impose the normal reasonable person standard
used and interpreted in a wide variety of legal contexts."
Legislative History of Title VII of HR 2673: The Sarbanes-Oxley
Act of 2002, 148 CONGo REC. S7418, S7420 (July 26, 2002). "The
threshold is intended to include all good faith and reasonable
reporting of fraud, and there should be no presumption that
reporting is otherwise, absent specific evidence." Id.

Defendants argue that Plaintiff "lumps together all
the enumerated statues from SOX," and thus J.P. Morgan "is left
trying to determine which statute could apply."

(Def. Mem. 13.)

Defendants maintain that "Plaintiff attempts to mask the fact
that her allegations do not constitute a claim by alleging in
the most conclusory manner that all of Client A's actions caused
21

her to believe that Client A was violating each of the statutes
enumerated in the SOX whistleblower provision and the money
laundering statutes.

However,

1I

(Def. Reply Mem. 10.)

U[a]ccording to

§

1514A, plaintiff is only

required to have reasonably believed that the problem about
[a]

which he was complaining constituted 'a violation of
provision of Federal law relating to fraud against

shareholders.'11 Smith v. Corning Inc., 496 F. Supp. 2d 244, 248
(W.D.N.Y. 2007)

(emphasis in original)

536 F.3d 269, 277

(4th Cir. 2008)

i

see also Welch v. Chao,

(noting that the

Administrative Review Board uhas squarely held that

§

1514A

protects an employee's communications based on a reasonable, but
mistaken, bel
violation.

/I )

f that conduct constitutes a securities
(citing Halloum v. Intel

, ARB Case No. 04­

068, 24 IER Cases 50, slip op. at 6 (ARB Jan. 31, 2006) i Allen
v. Admin.

Review Bd., 514 F.3d 468, 477 (5th Cir. 2008)).

Here, Plaintiff has alleged a myriad of allegations
that when taken together prevent a finding, at this stage, that
Sharkey's belief that Suspect Client was engaged in violations
of the enumerated SOX statutes was unreasonable.

22

These allegations include that Suspect Client had
financial ledgers that did not correspond with the company1s
financial statementsi that he used unusual or suspicious
identification documents that could not be readily verified;
that he refused to provide complete information about the nature
and purpose of its business

l

anticipated account activitYI prior

banking relationships, the names of its officers and directors!
or information on its business locations

l

or tax returns; that

funds transfer activities in his accounts were unexplained and
would show unusual patterns; that his accounts received payments
with no apparent links to legitimate contracts

I

goods! or

services; that unusual transfers of funds would occur among the
Suspect Client/s related accounts; that Plaintiff was unable to
obtain from the Suspect Client sufficient information to
positively identify originators! beneficiaries and/or
signatories of his accounts; and that Suspect Client1s
transacting businesses would share the same address and
exhibited other address inconsistencies

I

such as not in fact

maintaining an office where one was listed.

Sharkey also

alleges that Suspect Client would secure loans or margins by
readily marketable assets

l

which would put J.P. Morgan and its

shareholders at risk if any of those loans or margins defaulted.

23

Sharkey maintains that Suspect Client set up a
purported escrow account in the name of a law firm, but would
trade securities in and from this account and wire proceeds to
personal checking accounts without authorization of the law
firm.

Under this same account, the Suspect Client purchased

several million dollars worth of securities on margin, i.e., on
a loan from J.P. Morgan.

Plaintiff further alleges that the

Suspect Client's attempts to avoid or hinder Plaintiff's efforts
to conduct her investigation and comply with KYC requirements,
which are mandated by the Bank Secrecy Act, the USA PATRIOT Act,
and other federal securities laws, constituted additional
violations for which J.P. Morgan and its shareholders could be
liable if J.P. Morgan condoned or was complicit in avoiding
those KYC requirements.

Plaintiff additionally alleges that

Suspect Client's businesses dealt in merchandise from Columbia,
a nation with which she states J.P. Morgan was not supposed to
transact any business.

SOX prohibits an employer from retaliating against an
employee who complains about any of the six enumerated
categories of misconduct.
at 19 (citing 18 U.S.C.

§

Sylvester, ARB No. 07 123, slip op.
1514A).

Here, Plaintiff has surpassed

that bar and adequately pled that she formed a reasonable belief
24

that the Suspect Client was engaged in one or more violations of
the SOX enumerated categories of misconduct and, as described
below, that she complained to Defendants about each of these.

B. The AC Adequately Alleges the Conduct Plaintiff Reported
to Defendant J.P. Morgan and That Defendant Knew About
Plaintiff's Protected Activity

Defendants maintain that the AC does not specify which
paragraphs 27-36 of the AC,

of the allegations

"if any, were

conveyed to which [J.P. Morgan] supervisor or when."
10. )

Defendants

so contend that the AC is not specific enough

to "assess whether
Morgan]

(Def. Mem.

aintiff's unspecified 'complaints' to [J.P.

'definitively and specifically relate[d] to one of the

six enumerated categories of misconduct contained in SOX
806.'"

(Def. Mem. 11)

Int'I, No. 04
Aug. 25, 2009)

§

(quoting

. 6958 (PAC), 2009 WL 2601389, at *5 (S.D.N.Y.
("Fraser III").

However, a whistleblower "need

not 'cite a code section he believes was violated' in his
communication to his employer, but the employee's communications
must identify the specific conduct that the employee believes to
be illegal." Welch v. Chao, 536 F.3d 269,276 (4th Cir. 2008)
(citing Fraser II, 417 F. Supp. 2d at 322), cert. denied 129 S.

25

Ct. 1985 (2009); see also Sylvester, ARB No. 07-123, slip op. at
17 (holding that applying the 'definitively and specifically'
standard from case law under the Energy Reorganization Act to
SOX claims is "not only inappropriate, but it also presents a
potential conflict with the express statutory authority of

§

1514A, which prohibits a publicly traded company from
discharging or in any other manner discriminating against an
employee for providing information regarding conduct that the
employee 'reasonably believes' constitutes a SOX violation.") .
Here,

"Plaintiff has properly pled that she engaged in conduct

protected by 18 U.S.C.

§

1514A when she repeatedly reported her

concerns regarding the (Suspect] Client's illegal activity to
the Individual Defendants and JPMC's risk and compliance team."
Sharkey, 2011 WL 135026 at *6.

Plaintiff's communications regarding the Suspect
Client culminated in Sharkey's communication to Defendants on
July 30, 2009 - via her final KYC report - that J.P. Morgan exit
its relationship with the Suspect Client due to the concerns
Sharkey had previously reported.
in Paragraphs 27 36 of the AC.

The prior reports are alleged
These allegations include, as

described more fully above, that the Suspect Client would secure
loans or margins by deposits or other readily marketable assets,
26

such as securities, which in effect would put J.P. Morgan and
its shareholders at risk if any of said loans or margins
defaultedi the Suspect Client was involved in potentially
higher-risk activities, including activities that may be subject
to export/import restrictionsi under the several million dollar
purported escrow account, the Suspect Client purchased several
million dollars worth of securities on margin, i.e., on a loan
from J.P. Morgan for which it and its shareholders would bear
the risk.

(AC ~~ 27.j-27.k, 28-29).

By alleging that she

communicated these concerns to Defendants, Sharkey properly
asserts that she informed J.P. Morgan and the Individual
Defendants of the suspected fraudulent and illegal activity
perpetrated by the Suspect Client against the Company.

This was

protected activity under SOX.

The authority cited by Defendants is distinguishable.
Fraser III was decided on summary judgment, and thus the court
had a full record and different standards by which to evaluate
the plaintiff's claims. 2009 WL 2601389, at *1.

In Fraser II,

two of the plaintiff's whistle-blowing instances were permitted
to proceed to discovery, while those instances which pertained
only to "a complaint that [plaintiff's] advice was not being
followed but contain [ed] no communication from [plaintiff] to
27

any of the Defendants indicating that [plaintiff] believed the
company to be violating any provision related to fraud on
shareholders" were properly dismissed. 417 F. Supp. 2d at 323.
Unlike in Fraser II, here, all of the communications alleged in
the AC between Plaintiff and Defendants regarded the Suspect
Client and the likelihood that he was in violation of several of
the SOX enumerated statutes, as well as possibility that the
Company's stockholders could be at risk.

Finally, Portes, upon

which Defendants rely, is inapposite given that in that case
"[t]he purported violations involved [a] Consent Decree, FDA
Regulations, EU regulations, and other drug manufacturing
guidelines, not SEC rules or other federal law related to fraud
against shareholders." Portes v.

Pharms.

Inc., No. 06

Civ. 2689, 2007 U.S. Dist. LEXIS 60824, at *4 (S.D.N.Y. Aug. 20,
2007) .

The Defendants further contend that Plaintiff fails to
allege that Defendant J.P. Morgan "knew or should have known
that Plaintiff engaged in such [protected] activity.·
Mem. 14.)

(Def.

However, the AC alleges how, when and to whom

Plaintiff reported her concerns of fraudulent and illegal
activity on the part of the Suspect Client.
26, 39, 40 41, 43-44).

(AC

~~

I, 17, 20,

This includes Plaintiff's allegations
28

that " [s]tarting in January 2009 .
informed her superiors of the potenti
the Suspect Client"

[Plaintiff] repeatedly
unlawful activities of

i d . ' 1); within days of Plaintiff being

assigned to the Suspect Client's account,

"members

J.P.

Morgan's compliance and risk management team contact

Ms.

Sharkey to express their concerns regarding the Suspect Client's
leged involvement in illegal activities, including allegations
mail fraud, bank fraud and money laundering" and that
aintiff "immediately relayed this information" to Lassiter
id. , 20)

i

PI

iff shared her conclusions regarding her

research into and belief that "Suspect Client was engaged in
fraud, money laundering, mail fraud, bank fraud, and/or
violating federal securities laws" with Kenny, Green, and
Lassier

id. , 26)

department

i

Plaintiff "informed J.P. Morgan's compliance

her good fail believe that the Suspect Client was

. engaged in fraud, money laundering, bank fraud, mail
fraud, and/or federal securit

laws violations"

(id. , 43);

and on July 30, 2009 she submitted a Know Your Client audit on
the Suspect Client's account, which Kenny, Green, and Lassiter
received, that recommended that J.P. Morgan terminate its
relationship with the Suspect Client
further

i d . ' I, 44).

PI

ntiff

leges that prior to submission of that report she

repeatedly "communicated her complaints regarding the illegal
29

and/or suspicious activities" of the Suspect Client
to Defendants "via email, telephone
conferences, and in-person meetings."

id. , 39)

Is, telephone
(id. "

40, 44.)

As such, Defendant J.P. Morgan's claim that"

aintiff

still has not provided any detail about what she supposedly
reported to [J.P. Morgan]

[and that] the Amended Complaint

also fails to allege that [J.P. Morgan] knew or should have
known about

ntiff's alleged whistleblowing .

contrary to the facts alleged
Ci

the AC.

. . " is

See Gordon v. New York

Bd. of Educ., 232 F.3d 111, 116 (2d Cir. 2000)

("Neither

this nor any other circuit has ever held that, to satisfy the
knowledge requirement [under

tIe VII], anything more is

necessary than general corporate knowledge that the plaintiff
has engaged in protected activity.")
Ci

(citing Alston v. New York

Transit Auth., 14 F. Supp. 2d 308, 311 (S.D.N.Y. 1998)

("In

order to satisfy the second prong of her retaliation claim,
plaintiff need not show

individual decision makers within

the NYCTA knew that she had filed . .

[an] EEOC complaint.") i

Reed v. A.W. Lawrence & Co., 95 F. 3d 1170, 1178 (2d. Cir. 1996)
(holding that a plaintiff's complaint to an

ficer of the

company communicated her concerns to the company as a whole)).

30

Accordingly, Plaintiff adequately all

s conduct she

to Defendants and that Defendants had knowl

of

Sharkey's protected activity.

CONCLUSION

Based on the conclusions set

above, Defendants'

motion to dismiss is denied.

It is so ordered.

New York, NY
August

11'

2011

ROBERT W. SWEET
U.S.D.J.

31