It is now public knowledge that large corporate defense firms are representing whistleblowers under the Dodd-Frank Act. As part of an investigation into the U.S. Securities and Exchange Whistleblower Program, the online newspaper Whistleblower Network News (WNN) reviewed over 1000 documents released by the SEC in response to a Freedom of Information Action (FOIA) request. The investigation revealed that a number of “Big Law” law firms which primarily represent corporations and executives in SEC investigations have represented whistleblowers who have obtained awards through the program.
The exact number of corporate defense firms cannot be known, given the confidentiality surrounding SEC investigations. WNN uncovered that out of 64 different law firms that had represented whistleblowers who obtained awards under the SEC Whistleblower Program through 2021, 6 were primarily corporate defense firms. This comes out to 9.3% of firms. If this number holds and one considers the over 50,000 whistleblower cases pending before the SEC, then it is easy to see that a huge swath of defense firms have begun representing whistleblowers.
No matter the specific number of firms, this marks a major shift in the legal field. The “iron curtain” that historically separated law firms that represent corporate criminals from those that represent whistleblowers has fallen. Whether or not this is a good or bad thing, the shift unquestionably comes with serious ethical, policy and legal implications, and is not without risk for whistleblowers.
Clearly, there are inherent potential conflicts when a firm which primarily defends corporations accused of fraud takes on a whistleblower who is alleging fraud as a client. Although such representations may be permitted under the attorney’s rules of ethics, local Bar rules, and SEC policy they can still pose a number of issues. Corporate fraud cases can progress in unexpected ways and begin to involve new entities as they progress. Thus significant conflicts of interest may exist that are not evident at the commencement of a case. Furthermore, the SEC whistleblower law is still relatively new and precedent-setting issues consistently arise. It could be a major conflict of interest if a firm that primarily represents corporations is involved in a precedential case that could expand whistleblower rights and hurt corporations.
In order to best navigate these obvious conflicts, traditional defense firms should institute a number of procedures and guardrails to minimize risks to whistleblower clients. These procedures and rules should include:
- Defense firms who represent whistleblowers should identify this on their websites. All clients, both whistleblowers and corporate clients, need to know the scope of a firm’s practice and be able to consult their counsel on the potential for conflicts.
- Defense firms should fully disclose to any potential whistleblower clients how the firm’s primary practice will influence their handling of a whistleblower case. Firms need to be open about how they plan to advocate for expanded legal interpretations which benefit whistleblowers but harm corporations.
- Defense firms should have a plan of how to handle whistleblower cases where whistleblowers engaged in tactics, such as removing documents, which would be unpalatable for their corporate clients. Defense firms need to be prepared for the possibility that their case involves expanding the means by which an employee can gather information about potential wrongdoing by an employer.
- Before taking on a whistleblower case, defense firms need to fully explore the potential for conflicts of interests in “related actions.” Under the SEC Whistleblower Program, whistleblowers can qualify for awards based on enforcement actions taken by other federal agencies. Firms need to fully explore how potential “related actions” could expand the potential for conflicts among relevant witnesses, parties, and issues.
- Defense firms should establish protocols to refer whistleblowers to law firms and attorneys who primarily represent whistleblowers. Thus in instances where conflicts exist for defense firms a whistleblower still has access to quality representation.
Most importantly, whistleblowers need to be aware of the implications of choosing a lawyer whose firm primarily defends corporations. The entrance of Big Law defense firms in whistleblower representation shows that these firms recognize that the SEC Whistleblower Program is remarkably effective at holding fraudsters accountable, collecting sanctions, and correspondingly rewarding whistleblowers. But this shift could be dangerous. The proper steps need to be taken to ensure that whistleblowers only receive representation that is fully committed to advocating on their behalf.