By Adam Geller
The Associated Press
FLOYD, Va. - When lawmakers set out to protect investors from another Enron, they probably never imagined a company - or a controversy - like the one stirring inside this one-stoplight town's namesake bank.
The Bank of Floyd's board of directors amounts to a Who's Who of local farmers. There are no corridors of power - bank president Leon Moore's office is just down from the tellers' windows.
But a fight between the no-profile bank and a former employee is the unlikely first test of an effort by Congress to protect corporate insiders who blow the whistle on financial trickery.
David Welch, fired from his $60,000-a-year job as the bank's chief financial officer, is the first whistleblower granted protection under the Sarbanes-Oxley Act.
Welch worked at an accounting practice in 1999, when his boss asked if he'd be interested in an opportunity at a small bank the firm audited. Two weeks later, Welch started at the Bank of Floyd.
Until the early 1990s, the bank did business only in Floyd. Then its leaders began pursuing a grander vision, opening four branches and making the bank the sole subsidiary of a new holding company, Cardinal Bankshares.
Moore would not be interviewed for this article. But it's clear that the relationship between Moore and his CFO took a sharp dive after a verbal scuffle late in 2001, according to court papers and interviews with Welch, bank lawyer Laura Effel and the bank's external accountant, Michael Larrowe.
In October 2001, a shareholder walked in to the bank and asked about selling her shares.
A bank vice president responded, and Welch approved the sale of 26 shares.
Moore criticized Welch for allowing a transaction with a top executive so close to the end of the bank's financial quarter, fearing the appearance of insider trading.
That needled Welch, who suspected Moore of having done worse. Welch says he had noticed what he thought was a pattern of stock purchases by Moore and a handful of his friends that appeared to be timed shortly before key announcements sent the bank's stock up.
Effel, the bank's lawyer, says Welch was wrong about the timing of the stock purchases.
Welch also objected to the way expenses were sometimes recorded in one quarter, then later shifted.
"While we are not an Enron Corp., we have some similarities," Welch wrote in a memo to Moore. "Their management did not listen to their accounting employees either. I keep hoping this will change."
When the new law went into effect, Welch told Moore that he would not sign off on financial documents he believed to be deliberately misleading.
Sept. 17, the bank board's audit committee instructed Larrowe, the bank's external accountant, and their lawyer to sit down with Welch and hash out his allegations.
The sit-down was shifted by a few hours, then canceled, after Welch told the audit committee's emissaries that he would not meet without his attorney present.
Shortly afterward, the board of directors agreed that Welch was guilty of insubordination. David Welch was out of a job.
He filed a complaint with the Labor Department.
An Occupational Safety and Health Administration investigator ruled that while Welch's concerns may have been legitimate, the firing was justified because he was insubordinate.
But Stephen L. Purcell, the DOL administrative law judge who heard Welch's appeal, saw it differently.
"Sarbanes-Oxley was expressly enacted by Congress to foster the disclosure of corporate wrongdoing and to protect from retaliation those employees, officers and directors who make such disclosures," the judge wrote in a Jan. 28 decision.
He ordered Welch be awarded back pay and be reinstated in his job at the 50-employee bank.
The bank plans an appeal.
The law "was never intended to protect employees from a dispute with management, " Effel, the bank's lawyer, says.
Welch sees it differently.
Maybe, he says, this is a test from God. If so, it is a test any employee at a company with shareholders must meet, he says.
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It's whistleblower vs. the Bank of Floyd