A federal judge indicated Tuesday that a fired auditor who filed a whistleblower retaliation suit against PricewaterhouseCoopers failed to cite a specific law or regulation that he believed the company violated.
SAN FRANCISCO (CN) — A federal judge will decide if one of the world’s largest accounting firms broke the law when it fired a senior manager for blowing the whistle on the company’s allegedly cozy relationships with Silicon Valley companies it was tasked with independently auditing.
U.S. Magistrate Judge Alex Tse heard closing arguments Tuesday following a nine-day bench trial that ended in early March to determine if PricewaterhouseCoopers (PwC) retaliated against a former employee for filing a Securities and Exchange Commission complaint against the company.
Mauro Botta worked in PwC’s San Jose office and claims that before he was fired in August 2017, he was kicked off auditing projects for two technology companies after he raised flags about potential fraud. The companies were Cavium, which makes semiconductors used in electronics, and Harmonic Inc., which offers video-streaming and broadband-related products and services. Cavium was acquired by Marvell Technology Group in 2018.
During closing arguments held via Zoom video conference Tuesday, Botta’s attorney Alex Cabeceiras insisted his client was fired for blowing the whistle on PwC’s lack of independence in auditing the accounting practices of tech companies that paid the accounting firm large sums of money for its services.
“Common sense dictates that if an employee raises an issue in one audit and is kicked off the job at the client’s request, PwC is not adhering to its independent obligations pursuant to SEC standards,” Cabeceiras said.
PwC argued that Botta lacks proof to support the allegations of auditing improprieties. During the bench trial, the accounting firm presented evidence that Botta had problems accepting constructive feedback, had a “negative” communication style that rubbed clients the wrong way and engaged in “juvenile” behavior, such as protesting the firm’s celebration of Cinco de Mayo by wearing a “conspicuous American flag jacket.”
But those were not the reasons PwC gave for firing Botta. The company cited an outside attorney’s investigation, which concluded that Botta lied about creating a “nonexistent control,” or method of preventing accounting improprieties, for the Cavium audit in 2014.
In a post-trial brief, Botta claims PwC transformed his “suggestion” for a control into a “fabrication” or lie, which was used a pretext to fire him.
Botta accuses PwC of violating whistleblower protections under the 2002 Sarbanes-Oxley Act and the California state labor code. He also claims the company breached his employment contract by failing to give three months’ notice before firing him.
He seeks a minimum of three months’ salary in damages, reinstatement to his job, damages for emotional distress and punitive damages for PwC’s “reckless indifference” to the rights of its employees.
Cabeceiras urged Judge Tse to consider PwC’s global annual revenue of approximately $41 billion if he decides to award punitive damages to “send a message” to employers who retaliate against whistleblowers.
PwC attorney John Hueston argued his client can’t be held liable for whistleblower retaliation because Mark Simon, the managing partner who decided to fire Botta, knew nothing about the SEC complaint Botta had filed.
“Mark Simon neither knew nor suspected that Mr. Botta blew any whistle to anyone about anything,” Hueston said.
Botta’s attorney countered that circumstantial evidence supports the conclusion that PwC was well aware of Botta’s status as a whistleblower when he was terminated. Botta told employees in PwC’s human resources and ethics offices about his intent to file the complaint, and the firm’s office of general counsel and managing partners would have been made aware of any such complaint, he argued.
Cabeceiras added that the ”sole decision-maker” defense “spits in the face” of the reason Congress passed the Sarbanes Oxley Act in 2002 — to protect whistleblowers.
“A ruling in defendant’s favor based on this token decision-maker argument would provide that playbook to every company that wants to do this,” Cabeceiras said. “It would provide a system to shield companies from liability moving forward.”
After about three hours of arguments, Judge Tse posed a series of tough questions to Botta’s lawyer that suggested the former PwC accountant may have a tough time prevailing in his lawsuit.
Tse repeatedly asked Cabeceiras to identify a specific SEC rule or regulation that Botta believed PwC was violating when he filed his SEC complaint.
Cabeceiras replied that the law does not require his client to cite a specific statute or regulation. When asked to provide legal authority for that assertion, Cabeceiras could not cite a specific court case.
The whistleblower attorney argued that PwC has an obligation to maintain independence from the companies it audits as required by a financial reporting manual produced by the Public Company Accounting Oversight Board (PCAOB).
“The SEC created the PCAOB and adopted its standards,” Cabeceiras said. “It’s incorporated the PCAOB.”
Responding to that argument, another PwC attorney, Moez Kaba, accused Botta’s legal team of failing to provide proof of a suspected violation at trial and “picking a statute out of the air after the case is closed.”
Tse also asked how he could accept that Botta suspected PwC lacked independence in its audits when he previously signed off on those audits, affirming that they were conducted in a fair and independent manner.
Cabeceiras answered that his client’s view of PwC’s independence changed after Botta was removed from auditing teams after raising concerns and fired by the company.
“His whole viewpoint changed, but what facts changed?” Tse asked. “I haven’t heard testimony that he learned new facts — that when he was signing off on the audit, that something changed that there is no longer independence.”
After about four hours of debate, Tse thanked both sides for conducting the bench trial in a civil and professional manner with diligence, thoroughness and “zealous advocacy” for their clients. He did not indicate when he plans to rule.