Having recently lost its most recent court battle over Java. Oracle really didn’t want to find itself back in court. However former employee Svetlana Blackburn had other ideas. As a now former employee she has filed a lawsuit that contains four courses of action based on her trying to whistle blow some alleged fraudulent accounting within Oracle.
According to the court documents, Blackburn (or her lawyers) complaint is as follows:
“Plaintiff’s tenure at ORACLE, where she worked as a Senior Finance Manager, North America SaaS/Cloud Revenue, came to an abrupt end because she resisted, refused to engage in and threatened to blow the whistle on accounting practices she reasonably believed to be unlawful. Upper management was trying (and trying to push her) to fit square data into round holes, in an effort to bolster ORACLE Cloud Services financial reports that would be paraded before company leadership as well as the investing public.
“An experienced CPA, auditor and finance professional, Plaintiff was well aware of Sarbanes-Oxley controls and directives to adhere to Generally Accepted Accounting Principles (“GAAP”). Mindful of these rules, Plaintiff diligently performed her duties and received a positive performance review in August 2015. The following month, however, her supervisors charted a course that veered from legal, ethical and company standards.
“Plaintiff’s superiors instructed her to add millions of dollars in accruals to financial reports, with no concrete or foreseeable billing to support the numbers, an act that Plaintiff warned was improper and suspect accounting. She told her supervisor, “I will blow the whistle” if ordered to proceed further in this fashion.
“The data, she knew, would end up in SEC filings and be touted on earnings calls, used to paint a rosier picture than actually existed on the ground. Dollar amounts that might seem modest on their face would propagate through other data, influencing a host of statements on reports made to the investing public. Executives above her in the chain of command went ahead and added accruals on their own; once again, Plaintiff objected. She expressed serious misgivings about their plans for re-accruals as well. A supervisor instructed her to ignore the absent billings that she had pointed out, because his intention was to reaccrue. After confronting him about the dangers of a lack of billings, and the history of bad accruals that never resulted in billings, the supervisor told her that her statements were “irritating.” In addition to supervisors, a fellow finance manager and the company’s assistant controller were on notice of Plaintiff’s concerns. As Plaintiff continued to resist and warn off the accounting improprieties, she became more of a roadblock than a team player who would blindly generate financial reports using improper bases in order to justify the bottom lines that her superiors demanded to see.”
“ Within weeks, on October 15, 2015, the company terminated Plaintiff’s employment.”
The four actions that she raised are:
- Retaliation under the Sarbanes-Oxley Act (18 U.S.C. § 1514A et seq.): As Blackburn filed a complaint to the Department of Labor in November that remains unresolved, she is protected under the Saarbanes-Oxley act as an employee and seeks damages.
- Retaliation under the Dodd-Frank Wall Street Reform and Consumer Protection Act (15 U.S.C. § 78u-6 et seq.): Blackburn alleges that as a result of her dismissal and stress caused, she has been unable to work and is seeking damages and loss of earnings.
- Retaliation (California Labor Code § 1102.5): This is effectively the state law that covers the first two actions.
- Wrongful Termination In Violation Of Public Policy: In some ways this might be taken separately from the first three allegations. If Blackburn didn’t uncover false accounting practices then her supervisor/manager may still have contributed to a wrongful termination as a non team player. There should be a due process for termination and documented evidence should be presented.
The Oracle response
The Oracle response has been a complete denial:
“We are confident that all our cloud accounting is proper and correct. This former employee worked at Oracle for less than a year and did not work in the accounting group. She was terminated for poor performance and we intend to sue her for malicious prosecution.”
—Deborah Hellinger, Vice President, Corporate Communications, Oracle
The problem for Oracle is that the share price fell 4% after the news broke with the rumour mill going into overdrive. What Oracle don’t want is for this issue to rumble on too long, or remain in the public eye. It may be that this is merely a disgruntled employee, but until the matter is resolved there will be some doubt in the minds of observers.
The worst case scenario would be for a second whistle-blower to step forward. What is interesting though is what has not been said by Oracle. Why does Blackburn allege she was in a senior financial position, if according to Oracle it wasn’t in the Accounting group. They omitted to mention her actual role though.
If Oracle had been more open about this then perhaps it may become clearer about what figures were being allegedly manipulated. It will be interesting to see what the employment history of Blackburn is, where she was employed before and for how long. No doubt Oracle lawyers are even now poring over her life to see why, if false, these allegations have been made.
Oracle cannot easily settle out of court now the matter is public, unless Blackburn completely retracts her fraud allegations. In some ways the damage has already been done. Oracle almost need to prove that there was no misreporting or at least clearly demonstrate that adoption of cloud remains high. It will be interesting to see whether in the next quarter they are more open about some of the figures and how they were arrived at.
Conclusion
This is not good news for Oracle. However in a company as large as Oracle there will be employees who do things they shouldn’t as well as disgruntled ex-employees. The first question is whether the former undertook actions that were fraudulent and will actually impact future earnings. The second is whether Blackburn has a justification to be disgruntled. The truth may lie somewhere in between. While Oracle have quickly denied the allegations this may be because an internal investigation has been underway for some time, or it may just be a knee jerk reaction to deny everything.
For customers not much will change, unless the fraud activity is significant and it is in our opinion unlikely that will be the case. Customers invested in Oracle are not going to change strategy overnight and Oracle solutions are a known quantity and deliver the performance that companies want. Just because there is a single court action from an ex-employee against the company is not likely to sway multi-million dollar transactions. However if the story escalates then that might change.
This may just be a wrongful termination issue blown out of proportion, but the damage that it has the potential to do might ensure a long life for a Svetlana Blackburn Wikipedia page.
