Uncovering Private Lawyers’ Role in Whistleblower Programs

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Scholar argues that private lawyers’ involvement in whistleblower programs poses efficiency, fairness, and accountability concerns.

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American agencies awarded nearly twice as many whistleblower awards to tipsters represented by private lawyers as to unrepresented ones. And agencies disclose very little about the role private lawyers play in sifting through tips. The impact of private lawyers’ involvement in whistleblower programs is cause for concern, according to a scholar.

In a new article, Alexander I. Platt of the University of Kansas School of Law argues that the role of private lawyers in whistleblower programs breeds unfairness, inefficiency, and a lack of accountability for agencies. Platt proposes reforming whistleblower programs and regulating private whistleblower lawyers to remedy the deficits he identifies.

Whistleblower programs invite individuals to share information about unlawful conduct in exchange for financial payments, or whistleblower awards. In the United States, the agencies that administer whistleblower programs are the U.S. Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission.

Private lawyers are involved in whistleblower programs through two channels. First, agencies outsource functions to private actors that might have otherwise been reserved exclusively for agency workers, such as receiving and evaluating tips from potential whistleblowers. Second, individuals who submit information to the government—or tipsters—often employ private whistleblower lawyers for representation in their claims before agencies.

Platt argues that both types of private involvement in whistleblower programs have negative consequences for the programs.

With respect to the outsourcing of whistleblower program functions, Platt explains that agencies are not accountable for how much they spend on these programs.

For one thing, the agency can allocate whistleblower payments between whistleblowers and private lawyers at their own discretion. And because agencies are not required to keep records of outsourced tasks, the hundreds of millions of dollars that the SEC pays to private lawyers and other intermediaries are not formally accounted for.

In addition to accountability issues, Platt identifies efficiency concerns agencies create when they outsource whistleblower program functions to private lawyers. Namely, Platt argues that the cost of the programs is probably too high. Because agencies need to attract tipsters, they cannot decrease the amount a tipster can expect to receive. But to outsource parts of the program, these agencies must also pay private intermediaries. Thus, Platt explains, private outsourcing often causes agencies to spend more money on the programs overall.

Platt proposes that agencies regulate the whistleblower programs themselves to improve accountability and address inefficiency, such as by distinguishing between the amount paid to whistleblowers and the amount paid to attorneys in their recordkeeping.

In addition to outsourced functions, Platt argues that the involvement of private lawyers as representatives of whistleblowers leads to fairness and accountability concerns.

Platt explains that individual whistleblowers represented by counsel are more likely to receive money from the agencies than unrepresented whistleblowers. Ironically, however, represented tipsters often end up worse off than successful unrepresented tipsters after using significant portions of their awards to cover attorneys’ fees.

Platt proposes regulating the private whistleblower lawyers who represent tipsters to remedy this lack of fairness. Platt’s proposals include regulating the fees private whistleblower lawyers can claim from whistleblower awards by imposing a cap on contingency fees, and adopting fee disclosure rules.

Platt also argues that some lawyers obtain favorable treatment due to personal connections and insider knowledge. Often, these are lawyers who traveled through the “revolving door” from industry to government work. That insider information can impact a lawyer’s decision to represent a whistleblower, and once represented, whether that whistleblower succeeds. Platt notes that unrepresented whistleblowers must navigate the process without these lawyers’ advantages.

In response to this fairness concern, Platt suggests that agencies regulate communications between whistleblower lawyers and enforcement officials through ethics guidelines for attorneys participating in the whistleblower program.

In addition to unfairness, Platt contends that private lawyers as representation in whistleblower programs leads to a lack of accountability. An agency must provide an opinion explaining its decision to grant or not to grant an award to a whistleblower, but when a private attorney decides whether to represent a client, they need not provide any justification. Platt explains that prospective tipsters can shape their actions in accordance with agency opinions to maximize their chance of success. But the lack of transparency from private lawyers means that the public cannot learn from or adapt to private lawyers’ actions.

To improve transparency and remedy this lack of accountability, Platt suggests that agencies track and share with all prospective whistleblowers “tricks of the trade,” such as which types of supplemental documents accompany successful tips. Finally, Platt suggests that agencies encourage tipsters with credible information to hire an attorney to represent them, which would enhance the quality of information they submit.

Platt argues that whistleblower programs are due for a much-needed update. Platt suggests these various regulatory solutions to remedy the deficits of fairness, accountability, and efficiency that he argues have arisen from a model of private involvement free of oversight.