A U.S. appeals court has upheld the denial of a whistleblower award to a corporate attorney who reported alleged fraud involving his company to the Securities and Exchange Commission (SEC). The ruling, unsealed Friday by the U.S. Court of Appeals for the D.C. Circuit, found the lawyer failed to meet SEC requirements for “original” whistleblower information. Reporting fraud and unethical practices in your workplace involves a significant element of risk, one that could jeopardize your career prospects and livelihood, which is why there is an option to secure an award for reporting. If you have issues securing a whistleblower award, a Washington, D.C., whistleblower lawyer can help you.
According to the SEC’s rules, whistleblower claims by attorneys are only valid if disclosures align with professional conduct rules and serve the client’s best interests. The three-judge panel ruled that this exception did not apply, affirming the SEC’s decision to deny the attorney a share of the unspecified award.
The attorney, whose identity remains sealed, claimed his tip helped prevent significant securities fraud, which was linked to a 2018 SEC enforcement action in Florida. That case led to tens of millions of dollars in penalties against individuals, the lawyer’s company, and other entities. Despite these contributions, the court concluded that the attorney’s disclosure was fundamentally tied to his representation of his client, undermining his eligibility for an award.
“In reporting on the suspected wrongdoing, Doe was reporting on his own client,” the court stated. “Common sense dictates that Doe could not have reasonably believed he was acting in his client’s best interest.”
The SEC’s whistleblower program, launched in 2010, has awarded nearly $2 billion to around 400 whistleblowers, with individual awards sometimes reaching hundreds of millions. However, the agency emphasized that attorneys can only qualify for such awards in rare and specific circumstances.
The case, titled John Doe v. Securities and Exchange Commission, underscores the strict limits on whistleblower eligibility for legal professionals. Representatives for the attorney expressed disappointment, asserting he acted ethically to expose wrongdoing. The SEC declined to comment.
When Is A Whistleblower Not Eligible For An Award?
A whistleblower may be ineligible for an award under certain conditions, particularly when the information provided does not meet the strict requirements of the Securities and Exchange Commission (SEC) or other relevant authorities. Here are the primary reasons for ineligibility:
- Information Not “Original”: The SEC requires that whistleblower information be “original,” meaning it must stem from independent knowledge or analysis and not be derived from publicly available information or legal representation of a client.
- Attorney-Client Privilege: Attorneys who disclose information about their clients are generally excluded from receiving awards. Exceptions exist but are limited. For example, an attorney might qualify if their disclosure aligns with state professional conduct rules and serves the client’s best interests. However, if the attorney’s tip involves reporting their own client’s wrongdoing without meeting these criteria, they are likely ineligible.
- Participation in the Violation: Whistleblowers who are complicit in the misconduct they report may also be disqualified, especially if they were significantly involved in the fraudulent activities.
- Failure to Follow SEC Procedures: Whistleblowers must submit their information through proper channels, such as filing a Form TCR (Tip, Complaint, or Referral). Non-compliance with these procedural requirements can lead to disqualification.
- Timeliness: The information must be provided promptly and before an investigation is publicly announced.
Eligibility hinges on meeting stringent requirements, designed to ensure the integrity and fairness of whistleblower awards while protecting sensitive legal and professional boundaries. If you suspect fraud in your workplace, contact Eric Siegel Law to discuss your options under the Fair Claim Act and other whistleblower laws.