An exclusive interview with auditing whistleblower Mauro Botta
Mauro Botta sued PwC alleging the audit firm terminated him for blowing the whistle to the SEC. He lost his case but his experience provides plenty of lessons for others.
On July 26, a federal judge in California delivered a decision Mauro Botta had been waiting to hear for more than five years, at least.
Mauro Botta first reported his concerns to the SEC regarding several PricewaterhouseCoopers LLP audits in the Silicon Valley region in November 2016. Botta did not use an attorney to file his tip to its Dodd-Frank whistleblower site and, therefore, did not file the tip anonymously.
The SEC says it is committed to maintaining a whistleblower’s anonymity, even if they do not seek anonymity, in part because many whistleblowers report concerns to the SEC about their employers while they still have a job.
Mauro Botta made five legal claims at trial. Four were for retaliation or wrongful termination—respectively in violation of the Sarbanes-Oxley Act, 18 U.S.C. § 1514A; California Labor Code section 1102.5; California Labor Code section 98.6; and California public policy—and the fifth was for breach of contract.
The judge decided in favor of PwC on all claims. However, the judge focused on the first claim — violation of the Sarbanes-Oxley Act, 18 U.S.C. § 1514A — and, in deciding for PwC on that claim, in my opinion took a pass on scrutinizing the evidence or making a decision on the specifics of the rest. (Botta agreed not to appeal the decision in return for PwC canceling an invoice they sent for hundreds of thousands of dollars for their trial costs.)
The judge wrote that to succeed on his claim of violation of Sarbanes-Oxley Act, 18 U.S.C. § 1514A Botta had to prove that he 1) engaged in a “protected activity, and 2) that PwC took “adverse action” against him, and 3) that his “protected activity” was a contributing factor in the “adverse action” taken.
Judge Alex Tse said that Botta did not prove his primary claim “that protected activity was a contributing factor in the adverse actions he alleged.” In the end, the judge made a decision based on his opinion of which party was more credible. He found PwC and its witnesses more credible than Mauro Botta. By disposing of the primary claim based on his judgment, Judge Tse did not have to decide any of the other claims based on the law or the evidence presented.
I spoke to Mauro Botta about the judge’s decision in 35-minute exclusive interview. I asked Mauro what lessons he’s learned that might benefit others and what’s next for him.
Mauro had this general comment about the judge’s decision:
I find the judge decision very disappointing, first because it seems to denote an imperfect understanding of a deeply technical issue, combined with misquoted evidence. He summed up his decision based simply on his personal belief, which preempted any possibility of appeal.
A PwC spokeswoman provided this statement after the verdict:
We appreciate the Court’s thoughtful ruling, which comprehensively rejected the plaintiff’s false allegations. As the trial evidence demonstrated, the plaintiff was a disgruntled employee who—despite claiming to be a whistleblower—committed serious misconduct requiring his termination. Far from retaliation, PwC demonstrated the utmost integrity throughout this matter and that integrity is at the heart of who we are and how we operate.
In coming to his decision on the primary Sarbanes-Oxley Act, 18 U.S.C. § 1514A claim, Judge Tse used the word “credible” or “credibility” eight times, always in favor of PwC and its witnesses. That was true even when the testimony was based only on “he said – he said” recollections and not documents, notes or taped interviews that were entered into evidence. Here are the eight times Judge Tse said Pwc and its witnesses were more credible than Mauro Botta.
“One could wonder how Brown wouldn’t have known or suspected that Botta had gone to the SEC. As part of the internal investigation he led, Brown reviewed PwC memos that documented Botta’s accounting concerns during the 2014 Cavium audit. It seems plausible that those memos could have led Brown to wonder whether Botta was behind the SEC’s inquiry. Before Botta’s first interview with Brown, Botta also retained counsel, an attorney whose law-firm website profile stated that his areas of expertise included employment and whistleblower litigation. This attorney either attended or dialed in to Botta’s interviews with Brown, which again plausibly could have tipped off Brown to the fact that Botta was a whistleblower. (See Tr. at 406:1–407:2, 1503:22–1504:19, 1511:5–1513:25, 1538:5–1539:4.)
Brown, however, testified that the connection between Botta and the SEC’s investigation wasn’t so clear. He testified that the SEC didn’t tell him why it was investigating the 2013 and 2014 Cavium audits—the SEC didn’t reveal, for example, that it had received a whistleblower complaint, nor did it identify Botta. Brown also testified that he didn’t recall reading Botta’s attorney’s law-firm profile, or otherwise learning or suspecting that Botta had retained counsel who specialized in protecting whistleblowers… (See Tr. at 1460:3–6, 1473:19–1474:2, 1491:14–24, 1503:22–1504:19, 1506:1–1509:24, 1514:1–16, 1538:5–15, 1555:20–1556:4, 1559:3–4.) [Outside counsel Walter ] Brown’s clearer recollection was more credible than Botta’s.”
“[Outside counsel Walter ] Brown’s testimony was credible. He didn’t know or suspect that Botta had gone to the SEC. But even if Brown had known, a link between this knowledge and Botta’s termination was also missing.”
“PwC partner Kevin Healy offered contrary testimony, stating that he was also at the meeting (Botta confirmed that Healy was there) and that Carey didn’t threaten to fire Botta. (See Tr. at 1232:12–21.) On this disputed factual issue, the undersigned found Healy’s testimony more credible than Botta’s.”
“Mark Simon testified that he did indeed terminate Botta for violating “professional, legal and ethical duties, as well as PwC firm policy.” (Tr. at 1573:20–23.) More specifically, Simon testified that Botta had either created and documented an internal control that didn’t exist, or had lied about doing so…Botta didn’t offer any evidence to impeach Simon, and the undersigned found Simon to be a credible witness.”
“Evidence supported that Botta did flag potential accounting errors during the Cavium, Harmonic, and Gigamon audits. But Botta didn’t prove that his doing so contributed to PwC’s decision to remove him from the engagements. His supervisors credibly testified that they generally appreciated when he raised accounting concerns. (See Tr. at 1135:2–15, 1290:23–1291:12, 1295:6–12, 1296:7–17.)”
“If this had been a dead-end role, then PwC’s decision could have harmed Botta professionally. But the PwC partner who oversaw the Center for Excellence credibly testified that Botta’s role was a “strategic” one, and that he told Botta the role would “not negatively impact him” and could even set him up for promotion. (Tr. at 1231:11–25, 1232:22–1235:22.) Botta didn’t offer any evidence to refute this testimony.”
Botta argued that due to the accounting errors he identified during the Cavium and Harmonic audits, PwC decided not to staff him on an advisory project for Pacific Biosciences of California Inc. (PacBio). Botta speculated about this link—because he found it unusual that he wasn’t staffed on a project he had helped bring to PwC (he encouraged PacBio’s assistant controller, a former colleague, to allow PwC to submit a bid for the work)—but he didn’t prove, or even attempt to show, that the PwC officials who decided not to staff him on PacBio had any involvement in the Cavium or Harmonic audits or were otherwise aware of the issues he had raised during those audits. Nor did he offer evidence to corroborate his opinion that it was unusual for PwC not to offer him the opportunity to work on a project he had helped bring to the firm. (See Tr. at 383:14–387:23.) PwC, on its end, credibly explained why it didn’t assign Botta to PacBio.
At trial, Botta argued that PwC’s stated reason for firing him was spurious, because he didn’t fabricate an internal control or tell Walter Brown that he had. On this disputed factual issue, PwC’s evidence was more persuasive.Walter Brown had a firm recollection of what Botta said during the interviews in question. Botta’s statements stuck with him, he explained, because he was shocked by the admission and held a second interview to confirm it. Botta testified about the interviews, but his recollection was poorer. He testified that he didn’t tell Brown that he had “fabricated” an internal control, but he couldn’t remember exactly what he said instead. (See Tr. at 828:24–829:11, 841:6–11.) He also wouldn’t admit or deny whether he told Brown that he had created an internal control during Cavium’s 2014 audit. (See Tr. at 841:12–842:18.) Brown’s clearer recollection was more credible than Botta’s.
Finally, Judge Tse essentially calls Mauro Botta a liar.
“On the other hand, there were several inconsistencies between Botta’s SEC complaint, which he filed under penalty of perjury, and his testimony—calling into question his truthfulness… Whether the control was in place or not doesn’t presently matter; what matters is that Botta said one thing to the SEC and another thing at trial.
None of these inconsistencies directly contradicted Botta’s testimony about the October 2016 meeting between him, Kevin Healy, and Tim Carey. But they did cast doubt on his veracity. Conversely, there was no reason to doubt Healy’s veracity. His version of the October 2016 meeting (i.e., that Carey didn’t threaten to fire Botta for raising concerns about PwC’s audit practices) will thus be credited.”
Botta questions why or how Judge Tse came to his conclusion to give PwC and its witnesses the benefit of the doubt in every instance. The judge contends that there was a “disputed factual issue” when, in reality, he simply choose to believe one party consistently over the other.
On points number 1 and 2, it’s hard for me to understand how the judge can be so willingly incredulous. The issues Mauro Botta complained to PwC mirror the ones the SEC investigated.
Walter Brown only stated that I said I “fabricated” a control. He never even mentioned the “or lied about it” part, despite the fact that he led the internal investigation of the SEC’s allegations. Mark Simon was the one who added the optional reason solely based on third-hand information without ever speaking directly to Brown.
I testified that I was THE ONLY person that complained about the Cavium audit and its internal controls and the SEC investigated ONLY the years I was the senior manager on the Cavium audit.
Brown could neither confirm nor deny if he recalled checking the website of my then attorney who specialized in whistleblower cases, yet Judge Tse believed Brown that the connection between me and the SEC’s investigation “wasn’t so clear. ”
The office where Brown conducted the investigation in person was the same where the leaders that knew I was going to the SEC were located. It was not possible to ask Brown directly because Judge Tse agreed that PwC’s claims of attorney-client privilege over the substance of the investigation were warranted. How can the judge then fault me for not asking Brown any questions? There were deposition transcripts with the San Jose office Leader Tim Carey where he said I told him I was going to the SEC, and that that there was discussion around the office that I could be the whistleblower, but the judge said he did not have the power to subpoena him.
On point number 3, Botta responds:
PwC produced trial exhibits from the Ethics Office where they report that after interviewing Tim Carey and Robert Healy, they admonished them to refrain from using certain terms with me words because they could be perceived as a threat. This evidence could not be admitted because the PwC Ethics Office person, Patricia Lin, was in Louisiana, outside of the court’s subpoena power. Judge Tse also provided no evidence to support his contention that Healy’s testimony was more credible than mine other than he was a PwC partner.
On point number 6, Botta responds:
The Center of Excellence was led by a partner, Adrian Beamish, whose CPA license was suspended for “repeated misconduct” by the SEC and Judge Tse did not allow this evidence to be introduced because he deemed it not relevant. Given my cause for termination was “alleged” misconduct, it is striking that a partner in the same office whose license was actually revoked by the SEC for the same cause “misconduct” in the same time (August 2017) yet PwC never fired him was powerful comparative evidence, yet the Judge did not allow so arbitrarily.
I was also flabbergasted by the claim during the trial that being assigned to PwC’s Center of Excellence was some kind of prize for Botta.
On point number 8, I would ask the question: Is there any rational incentive for a 17-year veteran who wanted desperately to be a partner to either create a fake internal control or lie about it during an internal investigation compared to the incentive for PwC and its attorney to create a pretext to fire Botta, the guy who put his name on his SEC complaint, the complaint that he had reported up the line internally first and that caused the SEC to investigate one of its audits resulting in significant cost and regulatory scrutiny?
“I believe the Judge here makes another factual error. First of all, in his sworn declaration, Brown states under oath that I admitted to fabricate (not create) a control, while Simon says create. Secondly, Mark Simon never spoke to Walter Brown and he testified so accordingly. Simon made the decision to terminate me based on third-hand information, not speaking even to Brown directly, so the judge presented two facts inaccurately, important given he made a decision based on what testimony was more persuasive. It shows he did not understand the testimony. Simon also states he had never heard in 37 years such thing, yet no one found odd that one would lie or accuse himself to do something that is not a crime, on the contrary, this implausible was “believed” by the judge. Brown, in his testimony, recalls the conversation but not even the exact words. He instead gave his “take-away. ” How can that meet the judge’s definition of “clear recollection?”
Furthermore, Brown never asked me explicitly what I was accused of (fabricate/lie) and based his conclusion “on general tone of the discussion. ”Again, how does this meet the judge’s definition of a “clear recollection?’” Brown admits he is not an accountant nor an auditor yet he made a decision about what happened regarding a deeply technical accounting and auditing matter.
Brown testimony, transcript page 1523
Q. When you interviewed Mr. Botta, he never used the word "fabricated," did he?
A. I don't recall if he used that word. I don't -- I'm recalling today "created," "made up." I'm not sure the exact -- the exact word he used.
Q. He never used the word "lied"?
A. I don't recall if he ever used the word "lied."
Q. You say in your declaration that he stated that he fabricated a control?
A. Yeah. I don't -- I don't have my declaration in front of me. If you'd like to show me that, I would be happy to take a look it.
Q. Paragraph 4, if I could draw your attention to.
A. Yes. So this was -- I was not attempting to -- let's look at this for a second. Yeah. This was my description of what happened, of what he described. I wasn't quoting him, but my take-away is based upon the fact that he told us that he had created, made up an internal control that was fabricated.
The judge also offers no arguments that my recollection was poorer, given that just like Brown I had no recollection of the EXACT words. I did describe the facts and responded to the questions asked without ever using words such as “take-away” or “tone. ” Judge Tse quotes my transcript omitting my statement that I did not lie.
Botta testimony, page 842
Q. Sir, let's go to your testimony about what you're saying you recall with respect to your conversations with Walt Brown. First of all, I just want to make clear, sir. You stated, in fact, you don't really remember exactly what you were asked and what you said in that interview; right, sir?
A. I stated I do not recall the exact words used.
Q. Right. In fact, in your sworn answers to Requests for Admission when you were asked to, quote: "Admit - You stated during the interview that you had created the control threshold in 2015 during the audit of Cavium's 2014 year-end." Your response was, quote: "I do not recall the exact language used during the interview or the exact questions that I was asked. Therefore, I cannot admit or deny." That's what you said; right, sir? I also stated that I did not lie.
I would also add that this footnote in his decision is evidence that Judge Tse does not understand how audits work and who is ultimately responsible for everything in the final documents.
3 Botta argued that he was treated differently than Ty Thorson, who wasn’t terminated. But no evidence suggested that Thorson ever said that he had created and documented an internal control that didn’t exist.
If Botta suggested a way that the client would meet a control requirement and discussed it with the partner in charge of the audit, Tye Thorsen, had the ultimate responsibility to close the issue with the client, determine what the actual facts were and then sign off on the final documents and workpapers. If a control is documented in the workpapers that did not exist or was not supported by the facts, it is ultimately his responsibility. The audit opinion should have been withdrawn and the PCAOB and SEC would have had reason to investigate the auditing error. But that never happened.
In fact, in the most insane testimony of the whole trial, the former PwC US Audit leader, Mark Simon, when confronted with the possibility that if what Botta was fired for had actually happened — he had created a control that did not exist or lied about the existence of one that the audit opinion relied on — testified that it just did not matter.
Faced with the possibility that an audit opinion could lack support, Simon stated that the following year opinion sanitized the potentially dubious opinion. This suggests a serious concern, because if the leader in audit of PwC does not know how an integrated audit works, it begs the question, how many false opinions has PwC not disclosed because partners just thought that issuing a fresh one the next year it would “sanitize” any mistakes?
Regulators should be deeply worried about such admission by the former head of audit for PwC US. To understand the fallacy of his statement it is important to consider that when a company has a material weakness, auditors need to test a significantly larger sample in its detail testing in an integrated audit. Generally, by not doing so the auditor is not complying with auditing standards. Testing next year transactions also with lower samples does not sanitize a prior year false opinion at all.
MARK SIMON DEPOSITION:
A. No. So I think given the fact of the passage of time. So the investigation was taking place in 2017. The financial statements that were at issue or the concern around the fake control dated back to 12/31/14. So there were two subsequent audits that were performed in 2015 and '16 of the control opinion, which would be the opinion that would be impacted potentially if there was an issue around controls, had been superseded by both the '15 and the '16 report issuances. So no one was relying on those financials in that internal control report at this point in time.
With regard to alleged inconsistencies between Botta’s SEC whistleblower tip and his testimony, Botta has this response:
Judge Tse misstates my testimony quoting inconsistencies that do not exist, and showing his lack of understanding for what the Cavium control issue was. He focuses on semantics, such as use of words such as “controls” vs, “thresholds.” He also makes mistakes such as saying I did not notify the regulators of Zhone.
I reported Zhone to the regulators in an exhibit as well under “directly observed” once I saw issues there, too. It is simply false I did not let the SEC know about it. Furthermore, I submitted my tip to the SEC in September 2017, prior to my work at Zhone. My report to the SEC was also focused on independence violations, not on PwC’s internal retaliation against me, given that is an employment issue not a violation of SEC rules or securities laws.
Judge Tse agreed that the timing of Botta’s termination was his best evidence in support of his claim that PwC fired him because of his SEC complaint. Botta filed his complaint in November 2016. The SEC interviewed Botta and then on April 28, 2017, notified PwC that it had opened an investigation into the firm’s 2013 and 2014 audits of Cavium (only one of the audits Botta had flagged). Four months later, on August 17, 2017, PwC fired Botta.
“Walter Brown testified that PwC retained him as outside counsel in response to the SEC’s investigation and that he interviewed PwC employees, including Botta, who had worked on the 2013 and 2014 Cavium audits. (When retained, Brown was a partner at Orrick, Herrington & Sutcliffe LLP; at the time of trial, he was a partner at Paul, Weiss, Rifkind, Wharton & Garrison LLP.) Brown testified that in two separate interviews, Botta admitted that during the 2014 Cavium audit, he had documented as existing an internal control that he had created and that Cavium didn’t actually have in place. This admission was conveyed to Mark Simon, the managing partner of PwC’s U.S. audit practice; and Simon testified that, as he saw it, Botta had either fabricated an internal control or lied about doing so, both grounds for immediate termination. Simon promptly fired Botta in response. (See Tr. at 1455:14–1473:2, 1563:5–7, 1572:1–1574:4.)”
Botta had worked for PwC for seventeen years. As I wrote in a previous newsletter, the firm and its partners tried to keep him over and over, after his many notices of resignations. They even tried to keep him after many of the instances of his words or behavior that PwC’s attorney’s used to assassinate his character during the trial and characterize him as a difficult professional who was always complaining about something. I called it an abusive relationship.
The judge acknowledges that the fact that Botta was “fired in relatively short order after he filed his complaint hints at a connection between the complaint and his termination. (See Dkt. 218 at 2 ¶¶ 3, 6; Tr. at 96:21–22, 98:9–11, 99:1–2, 402:21–404:17, 1455:20–1457:2; JX20-1 to -9.)”
However, every time Judge Tse seems to be acknowledging a whiff of some nasty business he takes PwC’s and its partners’ and its lawyer’s word for it over and over again that the stench is something other than a dead squirrel in the chimney.
“It’s possible, of course, that multiple factors contributed to PwC’s decision to fire Botta; and if one of those factors was Botta’s SEC complaint, PwC could be liable for retaliation.”
Yet, none of the evidence the judge heard from a PwC partner who fired Botta without ever talking to him or to any of his supervising partners, or from an outside attorney who stated that the reason to fire Botta was based on two interviews that were not tape recorded, reduced to a written report or proven by any extemporaneous written notes at trial, only his recollection, made him wonder if “the call was coming from inside the house.”
Judge Tse, inexplicably in my mind, found PwC’s SEC investigation attorney Walter Brown and its defense attorney Jon Hueston more credible than Mauro Botta on every single issue and in every single instance of “he said-he said” testimony. Maybe that’s understandable since they share such a similar background.
Judge Alex Tse became an Assistant US Attorney in the Northern District of California in 1994, after a few years in private law practice, eventually becoming the interim US Attorney and then the Deputy US Attorney. Tse became a US Magistrate in January 2020. Brown worked for several white-collar defense firms since leaving his job as an Assistant US Attorney in the Central District of California in 1994. John Hueston, PwC’s lead attorney from Hueston Hennigan was also an Assistant US Attorney in the Central District of California, following Brown in in 1994 and staying until 2006. He was on the Enron Task Force and prosecuted Ken Lay and Jeffrey Skilling.
I asked Steve Sorenson, a partner with Thomas, Alexander, Forester & Sorenson LLP, who beat PwC and won damages of $335 million for the FDIC in the Colonial Bank case, what he thought.
Whistleblower cases are really hard to win.
Jason Zukerman, a whistleblower attorney with his own firm Zuckerman Law, had some additional thoughts on key lessons we can learn from this case.
The Botta case underscores the difficult position that auditors are placed in when they consider disclosing auditor independence issues or violations of audit standards or SEC rules. As a practical matter, the whistleblower wants to see the employer take corrective action without putting their job on the line. Therefore, employees often raise concerns informally and without alleging a specific violation of law. Who would write in an email to their supervisor that the company is committing fraud or engaging in other misconduct? But from a legal perspective, the employee is better off documenting their concerns in detail and in writing. Such documentation will be key evidence if they suffer retaliation.
A troubling aspect of the opinion is that it suggests that audit firms can fire whistleblowers by bringing in outside counsel to conduct a retaliatory investigation that is designed to “dig up dirt” on the whistleblower and provide an “independent” justification to terminate the whistleblower’s employment. In most cases, however, that tactic will backfire. Whistleblowers should approach internal investigations very carefully and be aware that they might be the real target of an investigation that is ostensibly focused on their disclosures.
The decision also underscores why it’s important that judges scrutinize an employer’s same-decision affirmative defense under the clear and convincing evidence standard mandated by SOX. In other words, the employer does not avoid liability just by showing that it could have taken disciplinary action against a whistleblower for a violation of a company policy. Instead, the employer must demonstrate by clear and convincing evidence that it would have taken such disciplinary action in the absence of the employee’s whistleblowing. Failing to apply the rigorous burden mandated by Congress permits employers to get away with retaliation against whistleblowers.
I asked Jason what makes it so difficult to be a whistleblower at a global audit firm.
Whistleblowing at a large audit firm is very tough because it's a relatively small industry and getting known as a whistleblower can make it difficult to move to work at other audit firms. Fortunately, there are whistleblower laws at the federal and state level that provide relief to whistleblowers, although those laws should be stronger. In addition, whistleblowers at audit firms can report anonymously to the SEC and be eligible for an award. However, they will typically have to wait at least 120 days to report to the SEC after they disclose the information internally.
It is disappointing to see the opinion adopt the common refrain that the employer appreciates the substance of the whistleblower’s disclosure but finds fault with the way in which the information was disclosed. Here, PwC asserted that Botta didn’t blow the whistle in a collaborative manner. But when a whistleblower sees that their colleagues are burying their heads in the sand and the whistleblower puts their neck on the line to raise concerns about the wrongdoing that is being ignored, the whistleblower is not likely to be perceived as a collaborative team player.
Finally, I asked Jason what lessons can other potential whistleblowers learn from Mauro Botta’s effort?
The opinion is unfortunate, but Botta had an important impact because the case generated a lot of press about auditor independence and sloppy auditing (including your posts).
One of the lessons of the opinion is for whistleblowers to blow the whistle loudly. In other words, don’t leave any doubt that there will be clear evidence that the decision-maker knew about your protected disclosure. But, of course, few whistleblowers, especially at audit firms, would go down that path and doing so can be career suicide.
Just yesterday I read about a case where a judge said someone did not qualify as a whistleblower because they reported their concerns to the SEC on a conference call rather than via email, fax or the SEC portal. That’s just nuts!
And then there is the story of the guy who waited 17 years for his whistleblower reward, only to be cheated out of it because the SEC decided to make a deal regarding the fine.
There oughta be a law!
Mary Inman, a partner with the London-based whistleblower firm Constantine Cannon, had this to say about what might have to change if whistleblowers are to prevail in the US:
The result in Mauro Botta’s retaliation case against PwC is regrettable and proof positive why the U.S. needs to follow the Europeans in providing greater legal protections for whistleblowers. The EU Whistleblowing Directive (which must be transposed into national law by all 27 EU member states by the end of this year) takes the bold and important step of reversing the burden of proof for proving retaliation claims, shifting the burden away from the whistleblower and more appropriately over to the employer.
Instead of the whistleblower having the burden of proving that she was terminated because of speaking up (as opposed to any number of reasons the employer may invent after the fact), the burden shifts to the employer to prove that they fired (or otherwise retaliated against) the whistleblower for a reason other than the fact that the whistleblower spoke up against wrongdoing.
Such a legislative change could well have changed the unfortunate result in Mauro Botta’s case to a more just one.
© Francine McKenna, The Digging Company LLC, 2021