Expanded Whistleblower Program in Dodd-Frank Act
November 09, 2010 | Westlaw News & Insight
A newly expanded whistleblower program in the Dodd-Frank law has opened a fertile business opportunity for plaintiffs’ lawyers –and sparked a feverish multimedia marketing effort aimed at people in a position to report financial skullduggery to the Securities and Exchange Commission. The new government program, which provides for lucrative payouts to financial whistleblowers and their lawyers, has attracted a wide variety of practitioners — from employment and personal-injury lawyers to class-action specialists — to what traditionally has been a niche practice, known as qui tam, or false claims, law.
But clients in this area are hard to find: The new law is still little known, and potential whistleblowers are typically skittish about ratting out bosses and colleagues. So some lawyers are taking client-development to a new level, combining traditional approaches such as emailing newsletters with aggressive use of social media. Dozens of law firms in recent months have established web sites and Facebook pages aimed at publicizing the whistleblower provisions.
Others have taken to Twittering or blogging about the new law. Phillips & Cohen, a Washington, DC, law firm that specializes in bringing whistleblower complaints, is one of several firms that have placed ads on Google so the firm’s name shows up among the top results for anyone who does a search for “SEC whistle-blower” and related terms. “The marketing is becoming more competitive and aggressive,” said Phillips & Cohen partner Erika Kelton. In the last couple of months, she said, her firm has received tips about accounting irregularities and companies overcharging for securities, and has filed several claims with the SEC.
“The Qui Tam Team, a new joint venture formed by Pennsylvania law firms Egan Young and L.E. Feldman & Associates, has created a Facebook page that includes links to news articles about whistleblowers and to its own website. The page notes that the Qui Tam Team’s favorite movies are “Michael Clayton” and “The Informant!” both of which, of course, involve whistleblowers.”
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Online marketing can be especially fruitful in this field, lawyers say, because prospective whistle-blowers often begin their research about filing claims online. Also, financial whistle-blowing is a relatively arcane subject; lawyers say their first challenge is to educate the public about it, and social media is a good way to share information and interact with potential clients. The new program extends an SEC enforcement scheme that previously covered only alleged insider trading to all manner of financial improprieties, from accounting fraud to misleading investors. Whistleblowers can be awarded up to 30 percent of damages collected over $1m, and their lawyers can collect up to 40 percent of their clients’ take.
‘Opening the door’
The Qui Tam Team, which formed in anticipation of the beefed-up expanded whistleblower program, hasn’t just turned to cyberspace to make connections with potential whistleblower clients. The firm recently assembled a round-table discussion about the Dodd-Frank whistleblower provisions, bringing together an employee benefits administrator, an investment manager, and a consultant to institutional investors. For more than an hour, the lawyers offered tips on how to spot fraud, file claims with the SEC, and perhaps earn big rewards for their effort.
“You may be looking at a spreadsheet of a public company and scratching your heads,” said managing partner Eric Young. “You can pick up the phone and call us, and maybe we can make something happen.” The participants, whom Reuters Legal agreed not to identify, seemed intrigued. The investment manager remarked that with Enron’s massive accounting fraud and the Bernard Madoff Ponzi scheme, company insiders may not have had the right incentives to come forward, or a clear means for doing so. “This sounds like a carrot,” he said of the newly expanded whistleblower program. “This is opening the door.”
As plaintiffs’ lawyers seek to help would-be whistle-blowers grab those carrots, though, some ethics experts believe the aggressive outreach could be problematic. Rule 7.3(a) of the American Bar Association’s Model Rules of Professional Conduct bars, with some exceptions, “in-person, live telephone or real-time electronic “communication with a prospective client when the goal is “the lawyer’s pecuniary gain.” Nora Freeman Engstrom, who teaches ethics at Stanford Law School, said some of the marketing that’s emerged in the wake of the new whistle-blower program “is conduct that falls close to the line.” (The SEC last week released 181 pages of proposed rules to implement the whistleblower provisions; the rules do not directly address marketing by plaintiffs’ lawyers, though they note that the agency can discipline or ban lawyers who engage in “unethical or improper professional conduct.”)
The Qui Tam Team’s Young said the three participants in the whistleblower roundtable had some prior relationship with the firm, which is one of the exceptions to the no-solicitation rule. Besides, he said, “I don’t think it’s solicitation because we are doing nothing more than educating people that we think might want to come forward with a claim. “Some corporate defense lawyers, meanwhile, have raised concerns that the aggressive marketing by the plaintiffs’ bar could lead to dubious claims by disaffected employees. “Law firms realize that if there is a big pie and somebody gets a 10 to 30 percent share, they share in the bounty,” said Allen Roberts, who co-chairs the corporate compliance practice at Epstein, Becker and Green.
‘High quality’ cases
But the SEC itself does not seem to share that worry. Dozens of new whistleblower claims have reportedly been filed in the last few months, and in an interview with Reuters Legal, Stephen Cohen, senior advisor to SEC Chairwoman Mary Schapiro, said most of them are “high quality.” While declining to discuss specific law-firm marketing efforts, Cohen said “the communication of the program’s existence is helpful because there may be potential whistleblowers who are not aware of these Dodd-Frank provisions.” Plaintiffs’ lawyers say they are determined to raise public awareness.
Manhattan plaintiffs’ lawyer Stuart D. Meissner recently began a Twitter feed about his whistleblower practice, and he’s readying a local billboard campaign. In late September, he launched an in theater advertising campaign during the premier of the film “Wall Street: Money Never Sleeps” to promote his website www.secsnitch.com. He figured the return of Gordon Gekko would attract a lot of Wall Street-types, any number of whom could be potential whistle-blowers. So far, he said, he has received more than a dozen promising leads. “In this case, the saying ‘greed is good’ has a certain positive twist,” Meissner said. “You can help yourself as well as help society by stopping the next Madoff.”
The Westlaw article was written by and reported on entirely by Brian Grow of Reuters Legal. (Reporting by Brian Grow of Reuters Legal)
© Reprinted with permission from the publisher, Thomson Reuters-GRC