The first whistleblower

FLOYD, Va. - Lawmakers probably never imagined that their efforts to protect investors from another Enron would produce results — and controversy — at this one-stoplight town’s namesake bank.

The Bank of Floyd’s board of directors amounts to a who’s who of local farmers. Many days, not a single share of its stock changes hands. 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, thanks to a little-noticed decision by a Department of Labor judge two weeks ago.

“I’m just a person who wanted to stand up and be counted, to stand up for what’s right,” Mr. Welch says. “And when I stood up, I got shot.”

On the surface, Mr. Welch’s accusations of accounting fraud and insider trading at a company with just 600 shareholders shouldn’t matter to most people. But the issue is intensely important to people at its center. To hear them talk, it should matter to others, too.

After all, they say, what happens the next time an ordinary worker at an ordinary company comes across figures and actions that just don’t seem to add up? When that happens, what is that worker, or his boss — or the government, for that matter — supposed to do?

Mr. Welch worked at an accounting practice in 1999, when his boss asked if he would be interested in an opportunity at a small bank the firm audited. Two weeks later, Mr. Welch started at the Bank of Floyd.

At 49, Mr. Welch saw the chief financial officer job as a big step up. With little training for such a role, it was “more or less a swim or drown kind of thing,” he would tell a judge later.

Mr. Welch’s new commute winded for half an hour from his home in Meadows of Dan, Va., through the twisting back roads and pastures of southwest Virginia’s Blue Ridge Mountains to Floyd’s tiny business district.

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.

Despite the bank’s growth, its annual profits still average just more than $2 million — about as much in a year as Citigroup has made in an hour.

It is hard to know precisely when things starting going wrong between Mr. Welch and the men who run Cardinal. Bank President Leon Moore would not be interviewed for this article, referring questions to an attorney for the bank.

But it’s clear the relationship between Mr. Moore and his chief financial officer took a sharp dive after a verbal scuffle late in 2001, according to court papers and interviews with Mr. Welch, bank attorney Laura Effel and the bank’s external accountant, Michael Larrowe.

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