Lawyer who tipped SEC can't claim whistleblower award, US appeals court rules
By Mike Scarcella
Aug 16 (Reuters) -A corporate attorney who tipped off the U.S. Securities and Exchange Commission to possible fraud involving his company was properly denied eligibility to collect a whistleblower award, an appeals court said in a ruling unsealed on Friday.
The U.S. Court of Appeals for the D.C. Circuit said the attorney, who was not named, failed to meet SEC requirements for whistleblower information to be "original" and not derived from legal representation of a client.
There is a limited exception to the requirements under which lawyers could claim an SEC award if their disclosure was made in accordance with state professional attorney conduct rules and in a client's interest. The D.C. Circuit found the exception did not apply.
The three-judge panel upheld a commission order denying a cut of the unspecified award.
In a statement, attorneys for the unnamed lawyer said their client “did the right thing in blowing the whistle” and said he “put a stop to a massive securities fraud.”
The SEC declined to comment.
Much of the litigation was conducted under seal, shielding the names of the attorney and his company.
The D.C. Circuit said the underlying tip was related to a 2018 enforcement action in Florida against two individuals, the lawyer’s company and other entities. Sanctions levied by the SEC in the case totaled tens of millions of dollars.
Whistleblower awards for attorneys are available only in limited circumstances, the SEC told the appeals court.
The lawyer argued that he acted in his company's interest and provided information to the SEC to prevent it from committing a crime.
The D.C. Circuit disagreed.
“In reporting on the suspected wrongdoing, then, Doe was reporting on his own client,” the court said. “Common sense therefore dictates that Doe could not have reasonably believed that he was acting in his client’s best interest.”
The SEC’s whistleblower program as of last year had doled out nearly $2 billion in awards to about 400 whistleblowers since its creation in 2010, according to the agency.
The largest awards have been worth hundreds of millions of dollars.
The case is John Doe v. Securities and Exchange Commission, U.S. Court of Appeals for the District of Columbia Circuit, No. 23-1044.
For Doe: Tom Cummins and Max Maccoby of Washington Global Law Group
For SEC: William Shirey of SEC
Read more:
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Reporting by Mike Scarcella
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