Attorneys for the Nevada National Security Site’s prime contractor want a federal judge to throw out a lawsuit from the company’s disgruntled ex-finance chief, who is trying to prove that the privately held contractor is subject to federal law that protects whistleblowers who expose financial misconduct at publicly traded companies.
In 2019, ex-Chief Financial Officer Stephen Musin sued Mission Support and Test Services (MSTS), its president Mark Martinez and its parent company Honeywell International for alleged whistleblower retaliation under the Sarbanes-Oxley Act, or SOX. Musin said he was illegally fired for exposing financial misconduct by Martinez — something he was allowed to do under SOX because MSTS is an affiliate of a publicly traded company.
Not so, attorneys for MSTS said in a motion to dismiss filed Jan. 15 in the U.S. District Court for Nevada, which has already thrown out the claim against Honeywell. Sarbanes-Oxley is the landmark corporate accountability law passed in 2002 after the Enron accounting scandal.
“Musin is still unable to demonstrate that Defendant Mission Support and Test Services, LLC (“MSTS”), a privately held company, or Defendant Mark Martinez (“Martinez”), MSTS’s Chief Executive Officer, are covered by SOX,” the company wrote in a Jan. 15 motion to dismiss.
Musin claims MSTS is an affiliate of its parent companies, Honeywell, HII Nuclear and Jacobs Engineering Group, because each of the parents has more than a 10% stake in the contractor.
But MSTS, citing a 1948 explanation from the Securities and Exchange Commission, said that while a 10% ownership stake is commonly used as a sort of benchmark for affiliation, it is not a legal threshold for establishing shareholder control of the owned entity. In MSTS’ case, the company argued, the contractor’s board of directors includes three members of the parent companies, no one of whom alone can direct the company to do anything.
Honewell owns 40% of MSTS, while Jacobs and HII respectively own stakes of 37% and 23%.
Judge Jennifer Dorsey had yet to rule on the motion to dismiss at deadline Friday for Nuclear Security & Deterrence Monitor.
MSTS also argued that even if the misconduct Musin alleges had occurred, something the company denies, it would have been perpetrated against a publicly traded company and not by it, putting it outside the purview of Sarbanes-Oxley.
Dorsey tossed Musin’s claims against Honeywell in December, writing that because no one owned a 50% stake in MSTS that it was not a subsidiary of any listed company. However, Dorsey allowed Musin to amend his complaint and attempt to prove that MSTS is covered by SOX for some other reason.
Musin pivoted and released an amended complaint around Christmas that advanced the affiliate argument. The ex-CFO also said that the Department of Energy’s National Nuclear Security Administration, which owns the MSTS contract, has called the parent companies “corporate affiliates of MSTS.” In addition, Musin said, MSTS’ financial information appears in the annual 10-K statements that its parent companies file with the Securities and Exchange Commission.
Current MSTS CFO, Stephen Beeler, in an a statement appended to the Jan. 15 motion to dismiss, disputed that last notion, writing that “none of the joint venture owners of MSTS include the detailed financial information of MSTS in their consolidated financial statements,” and that any money MSTS brings in shows up on the parent company’s 10-K only as equity interest in a joint venture, “distinguishing it from the parent company operations.”
MSTS has managed the former Nevada Test Site under contract to the NNSA since 2017, and the agency holds options that would extend the pact into 2027. MSTS is in the fourth year of the contract’s five-year base period.
