You Do Know How to Whistle, Don’t You Steve?

The United States Court of Appeals for the District of Columbia Circuit denied whistleblower compensation to an attorney who blew the whistle that led to substantial sanctions imposed on his client

Suspecting his client of committing a crime, an attorney blows the whistle, intending to subject his client to a possible investigation and enforcement action by the Securities and Exchange Commission (the “Commission”). Can such an attorney then collect a whistleblower award from the Commission on the grounds that the disclosure of his client’s information was reasonably necessary to serve his client’s interests? We agree with the Commission that the answer to that question is no.

Doe’s role

The Commission’s preceding investigation was prompted, in part, by a whistleblower tip filed by Petitioner John Doe. As the Defendants’ securities fraud scheme was unfolding, Doe was employed as in-house counsel at a company (the “Company”). The Company was owned and controlled by Individual 1 and provided assistance in connection with the Defendants’ securities offering. Doe worked on legal and administrative matters that were necessitated by the securities offering.

During the course of his employment at the Company, Doe came across information that indicated that Individual 2 was misappropriating money invested in the securities offering. Individual 2 did not own, control, or play any formal role at the Company.

After Doe’s blow

Although Doe’s whistleblower tip did not mention the Company or Individual 1, both were investigated by the Commission as a result of Doe’s tip and ultimately subject to enforcement actions. The Commission’s investigation and  enforcement actions resulted in judgments against Individual 1, Individual 2, the Company, and other corporate entities, along with sanctions collectively totaling tens of millions of dollars.

Compensation is authorized when the disclosure is permitted by state bar ethics rules

The Commission denied Doe’s application, reasoning that Doe’s disclosure of his client’s information was not permitted by any applicable state bar rule. We affirm the Commission’s sound determination that Doe’s disclosure of his client’s information was not reasonably necessary to serve his client’s interest because the record shows that, when he filed his tip, Doe suspected his client of wrongdoing and intended to subject his own client to an investigation by the Commission.

Doe asserted reliance on Florida bar rules

We hold that substantial evidence supports the Commission’s finding that Doe did not reasonably believe that disclosing the Company’s information to the Commission was “necessary” to “serve [his] client’s interest.” Id. The record demonstrates that at the time he filed the tip, Doe believed that the Company was implicated in the securities fraud scheme. In reporting on the suspected wrongdoing, then, Doe was reporting on his own client. Common sense therefore dictates that Doe could not have reasonably believed that he was acting in his client’s best interest. Indeed, Doe’s own statements illustrate as much. Doe noted in his application for reconsideration, for example, that while he did not yet have “smoking gun” proof of misconduct by his client at the time that he filed his whistleblower tip, he had “suspicions” that his client was implicated in the securities fraud scheme.

Conclusion

At bottom, having repeatedly stated to the Commission that he believed at the time he submitted his tip that his client was implicated in wrongdoing, Doe cannot now unring the bell. We hold that the Commission’s determination—based on Doe’s own statements—that Doe could not reasonably have believed that his disclosure was necessary to serve his client’s interests was supported by substantial evidence and was not arbitrary or capricious.

For these reasons, Doe’s petition for review is denied.

Circuit Judge Wilkens authored the opinion. (Mike Frisch)