Study Asks: Should SEC Reward Whistle-Blowers Who Are Attorneys?

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By Yin Wilczek

March 23 — Should the Securities and Exchange Commission reward attorneys for blowing the whistle on current or former clients?

A new study is raising the question, noting that it is a “cause for concern” that the SEC may be deciding whether to reward whistle-blower attorneys “through a secret proceeding that lacks an adversary presentation of issues and is largely insulated from judicial scrutiny.”

“Thus, a company that might view itself as harmed by a lawyer-whistleblower’s disclosure to the S.E.C. may never have an opportunity to contest the lawyer-whistleblower’s initial tip or eventual award,” the study states.

“Buying Voice: Financial Rewards for Whistleblowing Lawyers” is slated for November publication in the Boston College Law Review, author Kathleen Clark, a law professor from Washington University in St. Louis, told Bloomberg BNA.

Clark added that co-author Nancy Moore, a Boston University law professor, has reached out to the SEC staff about the study's findings.

SEC spokesman John Nester declined to comment.


The SEC's whistle-blower bounty program expressly limits an attorney's ability to collect a reward. For example, it excludes privileged communications from “original information” that may form the basis of a bounty.

In addition, attorneys that are retained to investigate possible legal violations in a company may only tip off the SEC under three circumstances:

• when they have a reasonable basis to believe that reporting to the SEC is necessary to prevent the company from engaging in conduct that is likely to cause substantial injury to the financial interest or property of the entity or investors;

• when they have a reasonable basis to believe that the company is engaging in conduct that will impede an investigation; and

• when the perceived wrongdoing has not been internally addressed within 120 days.


The SEC so far has rewarded 15 whistle-blowers since its program was established in August 2011 under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Informants may choose to remain anonymous under the program, and the SEC's award orders are heavily redacted in such cases to protect the tipsters' identities.

Open Question

According to the study, one problem is that it is not clear the extent to which lawyers' obligations under state conflict-of-interest rules or fiduciary law are preempted by the SEC's whistle-blower requirements. The authors also note that because the commission is the key decisionmaker under the statute, there may be few court decisions addressing whether and when lawyers may be rewarded under the program.

Moreover, informants may choose to remain anonymous throughout the reward process, the study adds.

“Even if financial rewards for lawyer-whistleblowers are appropriate in some circumstances, is a secret process, largely insulated from judicial review, ever appropriate for determining whether a particular lawyer is eligible to receive a whistleblower reward?” the study asks.

In a recent D.C. Bar panel, an attorney also suggested that the SEC should be judicious in rewarding compliance officers and corporate insiders.

To contact the reporter on this story: Yin Wilczek in Washington at

To contact the editor responsible for this story: Ryan Tuck at

The study is available through the Social Science Research Network at