Fausto Bustos told a California Central District Court that he was wrongfully terminated from City National Bank’s downtown Los Angeles location after raising concerns about its lax internal controls, accounting misconduct and possible tax fraud stemming from the digital technology divisions' reorganization.
Bustos was hired as VP of Digital Development Services Lead with the Bank’s Business and Technology Services (BATS) division in early 2015. He was responsible for overseeing the Bank’s portfolio of digital applications and managing the various project teams and contractors that developed them. Just four months later his supervisors described him as a “strong manager that drives commitments from his teams and resources” and by 2017 he made Senior Vice President and was entrusted with additional job duties and oversight responsibilities.
Bustos first complained to the bank in 2018 after its digital technology departments were reorganized. According to his complaint, the reorganization produced a lack of effective internal controls, clear lines of oversight, and enabled personnel to bypass Bank policy and federal regulations designed to ensure the accuracy of SEC filings and financial disclosures. Bustos claims he saw “significant accounting errors relating to software development projects, including errors that would inflate the amount of assets on the Bank’s balance sheets and allow the Bank to claim tax benefits and/or overstate its profits.” He saw this lapse in financial controls as a significant risk to CNB and ultimately to RBC.
Bustos’s complaints led to an internal investigation that resulted in CNB finding about $5.4 million in misallocated invoices and thereby vindicating his complaints, according to court documents. Around the same time, RBC’s internal auditors gave poor marks to City National’s internal controls.
In February 2019 Bustos was called to meet with an RBC auditor and supervisors from CNB for an annual audit review of the
Bank’s Digital Technologies portfolios. Bustos said that a lack of internal controls in accounting had made it challenging to ensure that his own accounting records were accurate. Soon after this meeting, Bustos met with HR and the Vice President of Corporate Security, and they said he misappropriated funds from projects. But a later investigation showed “these allegations were baseless and “perhaps retaliatory” towards Mr. Bustos raising complaints about personnel’s accounting misconduct,” according to the lawsuit.
Further, superiors at City National resented Bustos and his team’s involvement in calling attention to their deficiencies and misconduct. So they devised a layoff scheme to get rid of him and within weeks, Bustos and several lower-level employees were fired because of a supposed reorganization. However, their positions were soon advertised on hiring websites, and the Bank had always intended to replace them, as evidenced by an email regarding “recruitment needs.”
Sarbanes-Oxley Whistleblower Lawsuit
Bustos argued that City National Bank violated the Sarbanes-Oxley Act when it fired him in retaliation for airing his concerns about the potential misconduct and tax fraud stemming from the digital technology divisions' reorganization. The Sarbanes-Oxley Act of 2002 creates a private right of action for employees who experience retaliation who engage in protected activity relating to a publicly traded company.
Sarbanes-Oxley (also known as “SOX”) applies only to employees who:
- work for publicly-traded companies, or subsidiaries or contractors of publicly-traded companies, and
- report violations of federal securities fraud laws designed to protect the shareholders of public companies.
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- Reinstatement in the job from which you were wrongfully terminated;
- Back pay with interest;
- Attorney’s fees and other costs of bringing the whistleblower lawsuit; and/or
- Damages for emotional distress and/or reputational damage resulting from the whistleblower retaliation.
of retaliation with the DOL’s Occupational Safety and Health Administration (“OSHA”) as required by the Sarbanes-Oxley Act.
More than 180 days have elapsed since that complaint was filed, and no decision has been issued by the DOL to date. Bustos therefore had exhausted his administrative remedies, and OSHA had not issued a final decision Bustos filed this case in federal district court, and any arbitration agreement would be void.
The complaint is Case 2:21-cv-04879, filed June 15, 2021.