Notice & Comment

Regulatory Inconsistencies Lead to Uncertain Protections for Attorney-Whistleblowers, by Jennifer M. Pacella

In this post-election climate, one wonders how some of the most important legal issues of the current administration will be addressed in the years to come. One in particular that appears to be garnering less media attention than others pertains to the fate of the Dodd-Frank whistleblower program, specifically whether the momentum that has built for whistleblowers thereunder will weaken, especially after current SEC Chair Mary Jo White recently announced her intention to leave the agency. Under her leadership, the SEC has emerged as a true advocate for corporate whistleblowers, awarding them over $100 million in exchange for their disclosures pursuant to Dodd-Frank’s bounty program. The success of the program has also helped the societal perception of whistleblowers to evolve, gradually shifting from historically pejorative whistleblower labels to an appreciation of the valuable contributions that such persons provide in detecting fraud and other wrongdoing. In addition to its bounty program, Dodd-Frank’s retaliation protections for aggrieved whistleblowers are generous and expansive, providing would-be whistleblowers with the reassurance of direct access to federal courts in cases of employer retaliation that, if successful, result in such remedies as job reinstatement and double back pay.


Against this backdrop, the position of attorney-whistleblowers, specifically relating to their eligibility for retaliation protections, remains uncertain. This issue is especially precarious for in-house counsel who are subject to conflicting ethical and legal requirements depending on their jurisdiction of bar admission. I address this problem and the issues surrounding it in my Yale Journal on Regulation article, Conflicted Counselors: Retaliation Protections for Attorney-Whistleblowers in an Inconsistent Regulatory Regime. Attorneys, specifically those who “appear and practice” before the SEC, are legally required, pursuant to the Sarbanes-Oxley Act, to internally blow the whistle on their issuer-clients that commit material violations of the law. In addition, Sarbanes-Oxley grants such lawyers the option to make a permissive disclosure directly to the SEC to inform the agency of the client’s wrongdoing. Although attorneys practicing before the SEC may reveal confidential client information in this manner, they must nevertheless be mindful of whether such activity is permitted by the crime-fraud exceptions to the duty of confidentiality in their admitted jurisdiction. As it stands, eighteen states, as well as Washington, D.C., would never permit such attorneys to make the same type of external reporting that is available pursuant to Sarbanes Oxley.


Although the internal reporting mandate of Sarbanes Oxley does not in itself pose a problem to the ethical requirements of attorneys admitted in these other states, such lawyers face a roadblock as it pertains to availing themselves of the retaliation protections of Dodd-Frank as whistleblowers. An attorney who reports internally risks retaliation in much the same way as regular employees who escalate concerns up-the-ladder within their places of employment. If an attorney faces such retaliation and seeks legal redress under Dodd-Frank, the statute’s definition of “whistleblower” as one who reports “to the Commission” poses a problem—a plain read of the statute would imply that internal, as opposed to external, reporting does not constitute protected activity. The current landscape of federal case law examining this definition is divided, as many courts, including the Fifth Circuit in Asadi v. G.E. Energy, 720 F.3d 620 (5th Cir. 2013) have interpreted the statute to require whistleblowers to have made an external report to the SEC to be eligible for retaliation protections—a result that would compromise the attorney’s ethical standing if admitted in one of the jurisdictions that does not conform to the reporting rules under Sarbanes Oxley. In contrast, the Second Circuit, in Berman v. Neo@Ogilvy LLC, 801 F.3d 145 (2d Cir. 2015), has found the statutory definition of “whistleblower” ambiguous enough to grant Chevron deference to the SEC’s reasonable construction of the statute, which protects internal and external whistleblowers alike. My article analyzes this conflict by comparing the Sarbanes Oxley attorney reporting rules with the ABA’s Model Rules of Professional Conduct and variations thereof adopted by all of the states. I examine the intersection of each of these rules, consider related questions of preemption, and propose various amendments seeking to rectify the problem and better protect attorneys subject to the conflict.


Attorneys, through their mandated and permissive reporting, stand to play a significant role in fraud detection and the promotion of good corporate governance principles generally. It remains to be seen how they will fare as whistleblowers in the coming years as these issues develop and as the SEC takes on new leadership and possibly new priorities.


Jennifer M. Pacella is an Assistant Professor of Law at the Zicklin School of Business, Baruch College. For more information on related whistleblowing issues and legal developments, follow her on Twitter at @ProfPacella.


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