VP Unreasonably Believed that Oracle Defrauded Investors
Vincent Beacom was vice president of sales in the Americas division of the Retail Global Business Unit (RGBU) of Oracle America, Inc. The RGBU is a small part of Oracle’s business, generating 0.4% of Oracle’s revenue. RGBU Americas generates only 0.19% of Oracle’s revenue.
Beacom disapproved of the methods for projecting quarterly sales revenue that Michael Webster implemented when he became RGBU’s general manager in February 2011. Previously, Oracle had used a bottom-up forecasting process that mainly focused on potential deals that were likely to be closed before the end of the quarter. Regional managers later adjusted the forecasts. Deals that didn’t meet certain guidelines and criteria, such as those without a concrete close plan or an implementation plan, were known as “best case” or “upside” deals and were not recorded as projected revenue.
To Beacom’s dismay, Webster shifted sales revenue projections to a top-down process by establishing forecasting goals for each region by using deals that were already in the sales pipeline and historical conversion rates. Webster’s forecasting method resulted in higher projections than those under Oracle’s traditional method. For example, in the first quarter of fiscal year 2012 (June 1, 2011, to August 31, 2011), Webster projected $16.4 million in sales for RGBU Americas, while the old method would have projected $12.9 million. Webster’s superior, Bob Weiler, revised Webster’s projections based on his experience and discretion.
For the first three quarters of 2012, RGBU Americas overprojected its revenues by $3.4 million in the first quarter, $7 million in the second quarter, and $10 million in the third quarter.
Beacom claimed that as a result of the missed projections and the discrepancy between Webster’s model and the old model, Webster directed RGBU Americas salespeople to record deals that would have been considered “best case” (and disregarded under the old model), so that the old model would more closely reflect his projections.
Beacom repeatedly voiced concerns to Webster about the new projections method. He was concerned that “wrong, incorrect, non-fact-based expectations were being sent up through the management chains,” which would become the foundation of expectations sent to Wall Street, and that the inaccurate projections had contributed to Oracle’s decline in stock value.
In each quarter, however, RGBU Americas was only a few sales away from meeting its projections, and Beacom had told Webster several times that he could meet projections if he closed certain deals.
In January 2012, Webster told Beacom that he had increased his revenue projection from $25 million to $30 million. Beacom challenged Webster’s practice of “intentionally forecasting false revenue commitments.” Beacom then met with an HR representative to express concerns that Webster’s forecasts were setting the wrong expectation for shareholders.
Webster and Weiler terminated Beacom on the basis of poor performance and insubordination.
Beacom sued Oracle under the Sarbanes-Oxley Act (SOX) of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, claiming that Oracle wrongfully terminated him in retaliation for his complaints about Webster’s revenue projections.
History of SOX
Before discussing how Beacom’s claim fared, it may be helpful to review how SOX came to be and the evolution of the legal standards courts currently use in determining whether organizations are liable for retaliation against employees claiming the Act’s protections.
After a series of scandals involving corporate misconduct by companies like Enron and Arthur Andersen, SOX was enacted to “protect investors by improving the accuracy and reliability of corporate disclosures.” It mandated reforms to promote corporate responsibility, increase transparency in financial disclosures, and fight corporate and accounting fraud. It also required covered entities to disclose whether they have adopted a code of ethics for senior financial officers.
When President George W. Bush signed SOX in 2002, he characterized it “the most far reaching reforms of American business practices since the time of Franklin Delano Roosevelt.”
In 2003, just one year after SOX was signed, Forbes noted that “Two years ago, only about 1% of analyst reports would recommend investors sell. Today, that number is up to 20%.”
SOX prohibits publicly traded companies from discharging an employee in retaliation for providing information about “any conduct which the employee reasonably believes” constitutes corporate fraud or securities violations. The “reasonable belief” standard has both an objective and a subjective component. The employee must subjectively believe that the employer’s conduct violated a law relating to fraud against shareholders, and that belief must be objectively reasonable.
In 2006 the US Department of Labor’s Administrative Review Board (ARB) first considered the objective component of the “reasonable belief” standard. In Platone v. FLYI, Inc. the ARB held that to qualify as protected conduct, an employee’s complaint must (1) definitively and specifically relate to one of the categories of fraud or securities violations listed in the SOX whistleblower statute and (2) approximate the basic elements of the fraud or securities violation to which the complaint relates.
In 2011 the ARB rejected the Platone standard. In Sylvester v. Parexel Int’l LLC, the ARB held that an employee can satisfy the objective component of the “reasonable belief” statute simply by proving that a reasonable person in the same factual circumstances, with the same training and experience, would believe that the employer violated securities laws. Under the new standard, an employee may be mistaken but still have an objectively reasonable belief.
No court has rejected the Sylvester standard. Courts in the Second, Third, and Sixth Circuits have deferred to it. The Fourth and Tenth Circuits have addressed Sylvester but found that plaintiffs satisfied the more rigorous “definite and specific” standard from Platone.
In this case, the Eighth Circuit Court joined the Second, Third, and Sixth Circuits in adopting the Sylvester standard.
Beacom’s Belief Was Objectively Unreasonable
Even under the less rigorous Sylvester standard, the Court found that Beacom’s belief that Oracle was defrauding its investors was objectively unreasonable. Beacom, as an Oracle salesperson and shareholder, “would understand the predictive nature of revenue projections,” said the Court. In addition, “he would understand that $10 million is a minor discrepancy to a company that annually generates billions of dollars.” Therefore, he did not make a disclosure that was protected under SOX. [Beacom v. Oracle America, Inc. (USDC DMN 2016) no. 15-1729]
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