Academic journal article Boston College Law Review

Financial Rewards for Whistleblowing Lawyers

Academic journal article Boston College Law Review

Financial Rewards for Whistleblowing Lawyers

Article excerpt


The federal government increasingly relies on whistleblowers to assist in the enforcement of legal norms. This reliance is reflected not just in statutes promising protection for whistleblowers that experience retaliation, but also in other statutes providing large financial incentives for whistleblowers. The oldest of these statutes is the federal False Claims Act ("FCA"),1 originally enacted in 1863 to enable whistleblowers (often organizational insiders) to file qui tam lawsuits in the name of the federal government against companies that have made false claims for payment from the gov ernment. These whistleblowers ("relators") have a right to 10-30% of any resulting verdict or settlement, and have been awarded more than $4 billion in the years since Congress strengthened the statute in 1986.2 Based in part on the FCA's track record, Congress recently expanded the availability of whistleblower financial incentives by enacting the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ("Dodd-Frank"), which required the Securities and Exchange Commission ("SEC") to give financial awards to whistleblowers who report securities violations to the SEC.3 If a whistleblower's tip results in sanctions of greater than $1 million, the whistleblower can receive between 10-30% of the sanction amount.4 The SEC receives thousands of these tips every year, and has issued awards reaching into eight figures.

Lawyers for companies that do business with the government and for publicly traded companies have access to the kind of information that a whistleblower would need to file a qui tam FCA lawsuit or to file a whistleblower tip with the SEC. May lawyers-like other organizational insiders-take advantage of these financial incentives? Neither the FCA nor Dodd-Frank specifically addresses this question. As the government's reliance on whistleblowers has expanded, it is increasingly important to identify when lawyers- like others-may take advantage of these whistleblower incentives.

A handful of lawyers have sued their former clients as qui tam relators under the FCA, although to date none have been successful.5 Among the obstacles confronting lawyer-relators are their obligations of confidentiality and loyalty under applicable state ethics rules; indeed, three of these lawsuits were dismissed based on findings that the lawyers had violated their ethical duties under state law. Apparently relying on aspects of these FCA cases, the SEC's recently enacted Dodd-Frank whistleblower regulations exclude information learned in the course of a lawyer-client relationship unless a lawyer is permitted to disclose that information under either state confidentiality rules or the regulations that the SEC promulgated under the Sarbanes-Oxley Act ("SOX") of 2002.6 But the SEC's Dodd-Frank regulations do not address whether lawyers are eligible to receive a whistleblower award when their conduct violates their loyalty obligations under state conflict of interest rules or fiduciary law.

Should lawyers be permitted to receive financial rewards under the FCA and Dodd-Frank whistleblower programs? There are significant financial disincentives to engaging in whistleblowing. It can result not just in the end of a job, but the end of a career. Whistleblower awards can counteract these disincentives, for lawyers as well as for other insiders. Indeed, the SEC might argue that SOX expanded lawyers' confidentiality exceptions and granted them additional discretion to make whistleblowing disclosures. Yet years after the legislation's enactment, there is little evidence that lawyers have actually made disclosures to prevent, mitigate, or rectify client fraud. Lawyers-like others-may need whistleblower awards to counteract the financial disincentives for blowing the whistle.

But a client-lawyer relationship is, in some respects, different from other relationships. Lawyers can play a critical role in ensuring that clients understand and comply with the law. …

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