Court: Fidelity investment advisers not covered by federal whistleblower law

A federal appeals court today tossed a lawsuit by two people working for a Fidelity subscontractor who alleged they were fired for bringing up possible accounting irregularities, because a federal law intended to protect the public from securities fraud is limited to employees of companies that are publicly traded.

In what could be the first appellate decision on the whistleblower provisions of the Sarbanes-Oxley Act, the Court of Appeals for the First Circuit in Boston said Congress was pretty explicit in limiting the law's protection for whistleblowers to employees at public companies. Because of that, the former employees of FMR, LLC, a privately held company that provides consulting services to the public Fidelity family of mutual funds, have no legal ground to stand on, the court ruled.

The actual mutual funds, however, have no employees, relying entirely on the subcontractors to manage their operations and make investment decisions.

In a dissenting opinion, Justice Ojetta Rogeriee Thompson said the ruling, if upheld, "will bar a significant class of potential securities-fraud whistleblowers from any legal protection." She wrote subcontractors in this case are essentially the same as "agents" referenced by the law and deserve the same protection.

• Complete ruling