Lawyers have a duty to protect their clients. Under our legal system, even the worst and most depraved criminals are entitled to legal representation. Our Founding Fathers wisely decided that the right to counsel was so important, that it needed to be part of the constitution and protected for all time’s sake. There are limits, however.
While a lawyer can represent a criminal, lawyers aren’t allowed to participate in criminal behavior nor can they assist their clients in the commission of a crime. Things get complex, however, when a lawyer files a whistleblower claim against a wrongdoing client.
There are several layers to the debate about lawyers becoming whistleblowers.
Some programs, such as the SEC whistleblower program, offer specific guidelines for a would be lawyer turned whistleblower. We will start there first. The SEC program has three broad categories for whistleblowers, two of which can be denied an award.
First, there are those who simply aren’t eligible to receive an award. These folks are defined by statute and regulation and include SEC employees, those who lie to the Commission and those guilty of criminal conduct related to the very behavior for which they seek an award. (Think of a kidnapper turning himself in to collect an award.)
Another ineligible group are auditors who are legally required to report misconduct to the SEC and instead file a whistleblower claim seeking an award. (Think of a cop seeking an award for turning in a kidnapper.)
The second group includes lawyers and accountants. The SEC generally won’t pay awards to whistleblowers who use “privileged” information in seeking an award or who are acting as whistleblowers while simultaneously representing the company or individual they are turning in. Yet another rule excludes lawyers hired to investigate possible securities violations.
If you think that shuts the door on lawyers receiving whistleblower awards, think again.
The SEC has publicly stated that they have no interest providing a “financial benefit” for lawyers “submitting information in violation of [their] ethical obligations.” Sounds pretty clear? Well, the SEC also says that it will accept “confidential” information from lawyers if the disclosure would be permitted under the SEC’s lawyer conduct rules or under state bar ethical rules.
The SEC’s Attorney Conduct Rules are codified in Part 205. These rules only apply to lawyers who are working for an issuer. If a lawyer is working on a public offering, for example, the SEC says that lawyer has certain reporting requirements. Those requirements are internal, meaning to others in the chain of command of the issuance. But these same rules also permit reporting to the SEC.
A lawyer operating in these narrow confines can report confidential client information to the SEC and still qualify for a whistleblower award.
The broader exception looks to state attorney ethics rules. In virtually all states, that rule is known as Rule 1.6. These rules prohibit a lawyer from disclosing confidential information of the client unless the disclosure falls into a specific exception. In some states those exceptions are quite narrow while in others they are much broader.
Generally, those exceptions include the following categories (but not every category is available in every state.)
Crime Fraud Exception – Future Crime. Virtually every state allows an attorney to disclose information to prevent the client from committing an intended or future crime.
Crime Fraud Exception – Past Crime. Some states allow lawyers to disclose confidential information if necessary to prevent or mitigate financial injury that has or is likely to occur from prior criminal activity.
Crime Fraud Exception – Ongoing Crime. State bar rules generally allow disclosures to avoid assisting the client from engaging in an on-going crime.
Crime Fraud Exception – Fraud. Many states allow lawyers to disclose information needed to prevent or stop a client from committing fraud that causes harm to others.
Correcting False Statement. Lawyers have a duty of candor to judges, courts and agencies before which they appear. A lawyer often has an ethical obligation to correct prior misstatements made to courts and tribunals. (See also Rule 4.1)
The above categories are general. Each state has very specific rules and case law interpreting those rules. Also, in some states, the rules “permit” disclosures while in other states, such as Pennsylvania, disclosure is “required.”
Our discussion thus far has related to the SEC’s Whistleblower Program. The bigger and older program is the federal False Claims Act, which traces its roots back to the Civil War. While there are no formal rules as with the SEC, the state bar rules apply but in a different manner.
The SEC uses the state bar rules to help determine whether a lawyer as whistleblower is entitled to an award. There are no such formal rules in false claims act but a judge generally has discretion to determine the eligibility for and size of whistleblower awards. In addition, lawyers who make a wrongful disclosure could find themselves on the wrong size of an ethics complaint.
Bottom line? Lawyers have an ethical duty to their clients but sometimes they have an ethical duty to report wrongdoing, particularly when the wrongdoing is ongoing, involves fraud or involves a criminal act. Unfortunately there are not any uniform rules, so caution is needed when filing a whistleblower complaint against a former client.