A corporate lawyer who alerted the U.S. Securities and Exchange Commission (SEC) to potential fraud within his own company was ruled ineligible for a whistleblower award, as determined by a recent decision from the U.S. Court of Appeals for the D.C. Circuit. The court’s decision, unsealed on Friday, confirmed that the attorney failed to meet the SEC’s criteria for providing “original” information, as his tip-off was derived from his role as legal counsel to the company.
Under SEC rules, lawyers can only claim whistleblower awards in very specific circumstances, such as when disclosures align with state professional conduct rules and serve the client’s interest. However, the D.C. Circuit found that this exception did not apply in this case, upholding the SEC’s decision to deny the attorney a share of the award.
The attorney’s legal team maintained that their client acted in the company’s best interest by exposing the fraud, but the court disagreed, stating that the lawyer was essentially reporting on his own client, which disqualified him from claiming the award.
This ruling relates to a 2018 enforcement action in Florida involving the lawyer’s company and several other parties, with the SEC imposing sanctions totaling tens of millions of dollars. The lawyer, identified in court documents as “John Doe,” had argued that his actions were aimed at preventing the company from engaging in illegal activities, but the court concluded that his belief in acting in the client’s best interest was unreasonable.
Since its inception in 2010, the SEC’s whistleblower program has awarded nearly $2 billion to around 400 individuals, with the largest awards reaching hundreds of millions of dollars. However, as this case highlights, the path to securing such awards can be fraught with legal hurdles, especially for attorneys bound by their professional duties.
The case is John Doe v. Securities and Exchange Commission, U.S. Court of Appeals for the District of Columbia Circuit, No. 23-1044.
