A question that we are occasionally asked concerns attorneys as whistleblowers. It’s a reasonable question—who is better positioned to know whether their employer (for in-house counsel) or client (external counsel) is following the rules? But with knowledge comes duty, and the prospect of attorney-whistleblowers raises the specter of conflicts of interest in a way that many state bar associations frown on. Focusing on the federal law, though, the answer is yes, but only in very limited circumstances.
The Securities and Exchange Commission’s whistleblower program will pay an award to a whistleblower who meets four criteria: they must (1) voluntarily provide the SEC (2) with original information (3) that leads to a successful enforcement action (4) in which the SEC obtains monetary sanctions totaling more than $1 million. See § 240.21F-3(a)(1)-(4). The rules of the program consider the question of an attorney-whistleblower in their definition of “original information,” that is, information “derived from your independent knowledge or independent analysis.” See § 240.21F-4(b)(1)(i). Absent special circumstances, the SEC will not consider information to be “derived from your independent knowledge” if that information is “obtained through a communication that was subject to the attorney-client privilege,” or if the information was obtained “in connection with the legal representation of a client on whose behalf you or your employer or firm are providing services, and you seek to use the information to make a whistleblower submission for your own benefit.” See § 240.21F-4(b)(4)(i) – (ii) (emphasis added).
These two circumstances cover most of the situations the average attorney would obtain the type of information worthy of a whistleblower complaint. Accordingly, a lawyer can only serve as a whistleblower if the contemplated disclosure “would otherwise be permitted by an attorney pursuant to § 205.3(d)(2) of this chapter, the applicable state attorney conduct rules, or otherwise.”
So, when would disclosures be permitted by this section? Only when the attorney believes that disclosure would reasonably be necessary to prevent one of the following circumstances:
- To prevent the issuer from committing a material violation that is likely to cause substantial injury to the financial interest or property of the issuer or investors;
- To prevent the issuer from committing perjury in an SEC investigation or administrative proceeding, or from committing an act likely to perpetrate a fraud on the SEC; or
- To rectify the consequences of a material violation by the issuer that caused or may cause substantial injury to the financial interest or property of the issuers or investors in furtherance of which the attorney’s services were used.
See § 205.3(d)(2) (emphasis added).
While the SEC clearly supports attorneys as whistleblowers when necessary, it is important to note that state bar associations may not take the same view. The SEC’s exceptions are similar, in some respect, to some of the exceptions set out in the American Bar Association’s Model Rules for Professional Conduct, which permit the disclosure of privileged information in order to, inter alia, “prevent the client from committing a crime or fraud that is reasonably certain to result in substantial injury to the financial interest or property of another,” or to “prevent, mitigate, or rectify substantial injury to the financial interests or property of another that is reasonable certain to result or has resulted from the client’s commission of a crime or fraud.” ABA MRPC 1.6(b)(2)-(3).
With respect to organizational clients specifically, the Model Rules also permit counsel to externally report illegal activity, even if such disclosure is outside the scope of Rule 1.6, but only to “the extent the lawyer reasonably believes necessary to prevent substantial injury to the organization,” and only after the attorney takes certain steps to resolve the issue internally. (Emphasis added). On the other hand, in New York, the crime-fraud exception to attorney-client privilege—which allows disclosure “to the extent the lawyer reasonably believes necessary . . . to prevent the client from committing a crime” N.Y.R. Prof. Conduct 1.6(b)(2)—concerns ongoing or prospective crimes, not crimes that have concluded. Cases concerning attorney whistleblowers do exist, usually arising in the context of in-house counsel filing retaliatory discharge suits, but results have been inconsistent across jurisdictions.
Which is all to say: YES, an attorney may be a whistleblower. But tread carefully: depending on the state law, a whistleblower may find themselves in the unfortunate position of being lauded by the SEC, but disciplined by their state bar.