Abstract

Experience teaches that attorneys may violate duties of confidentiality and trust to pursue personal gain. Multiple insider trading, embezzlement, and fraud prosecutions prove the point. The Dodd-Frank Act of 2010 establishes a bounty regime whereby certain whistleblowers are eligible for awards of 10%–30% of Securities and Exchange Commission (“SEC”) enforcement recoveries exceeding $1 million. Since its inception, this program has paid at least 207 whistleblowers more than $1 billion. The Commission’s bounty program thus may be a meaningful inducement to breach privilege.

The SEC asserts that its whistleblower authority preempts state law and that it can accept attorney–client privileged information. However, it simultaneously operates filter teams designed to sequester potentially privileged information from enforcement attorneys who might work on the matter, suggesting that it may be skeptical of its own preemption claim. This skepticism is warranted. The SEC’s purported preemption is unsupported by the statutory text and legislative history. The Commission should, therefore, rescind its views regarding preemption but continue to operate its filter teams.

The Commission would also be wise to modify its current filter team procedures and improve its communications regarding the receipt of potentially privileged information. Specifically, the Commission should reform and publicize its filter team procedures. It should also loudly warn whistleblowers that it will neither accept privileged information nor reward those who breach privilege. Finally, filter teams should adopt more aggressive techniques to ensure that they are not inadvertently receiving privileged information.

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