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Playboy Must Pay $6 Million to Fired Whistleblower

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This file photo made June 19, 2004, shows the Playboy trademark image in Los Angeles. Playboy Enterprises Inc. said Monday, July 12, 2010, that its iconic founder Hugh Hefner is offering to buy the remaining shares of the media empire, taking the company private, in a deal that values the company at $185 million. DAMIAN DOVARGANES / AP

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LOS ANGELES — Playboy Enterprises must pay $6 million to a former accounting executive who was wrongfully terminated, a federal jury in California decided Wednesday, and may have to pay more when punitive damages are decided later this week.

According to the suit filed in the U.S. District Court in California, Catherine Zulfer, a former controller at Playboy, reported to company management "actual and suspected frauds and improprieties" after refusing to prepare $1 million in bonuses for top executives without proper approvals.

The jury found that Zulfer was unlawfully fired in retaliation for reporting alleged fraud within the company, in violation of federal whistleblower protections provided by the 2002 Sarbanes-Oxley Act.

The jury also determined that Playboy Enterprises discriminated against Zulfer on the basis of age, as part of the company's plan to reduce costs by firing older employees.

Zulfer was 56 at the time of her termination in 2012.

"We strongly disagree with the jury's decision," a company spokesperson said in a statement to Reuters. "Playboy stands behind the conduct of its management team and our corporate governance practices. We will assess the pursuit of all available options, including an appeal and overturning the verdict."

The $6 million compensatory damages verdict is thought to be the largest award ever under the Sarbanes-Oxley law.

In 2013, two whistleblowers were awarded $4.6 million in a lawsuit against gambling software company International Game Technology. That company is currently appealing the ruling.

The lawsuit claimed that Playboy CFO Christof Pachler stopped talking to Zulfer, ostracized her, excluded her from meetings and discussions which she'd normally have been included in, withheld crucial information she needed to carry out her duties, set her up to fail by eliminating 15 corporate accounting positions in Chicago, leaving her to assume those duties in L.A. with little or no help.

Then, according to the lawsuit, Pachler announced a plan to rid the company of older, long term employees - specifically those who had been with the company for more than ten years. "That pattern continued until plaintiff was laid off. Plaintiff only learned about her upcoming termination through her replacement," according to the complaint.

Pachler treated her with "utter disrespect" and attempted to "cheat her out of the severance" she was due under Playboy's policy. The plaintiff says she was "shunned, humiliated and treated like an outcast."

Playboy Enterprises may also face further penalties. The U.S. District Court jury decided the company acted with "malice, fraud or oppression," so Zulfer's case will proceed to a punitive damages phase on Friday.

— Reuters

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