The following is an an excerpt following a link to my latest article that was published in SMU Law Review in Fall of 2019 concerning attorney whistleblowers.
Notwithstanding the political grandstanding and legal regimes put in place to prevent the next Enron, this article explores whether attorney whistleblower provisions provided in the Standards of Professional Conduct for Attorneys Appearing and Practicing Before the Commission in the Representation of an Issuer and in the Model Rules of Professional Con- duct are effective. When faced with attorney involvement in Enron, Con- gress passed § 307 of the Sarbanes Oxley Act (Sarbanes), which required the Securities and Exchange Commission (SEC) to amend its standards governing the conduct of attorneys practicing before the SEC. In response, the SEC and the American Bar Association drafted or amended rules to remind attorneys that the client is the company, not its agents, and to enable attorneys to disclose information. The new rules require attorneys to report suspicious activity up the chain, going as far as the board of directors, if necessary, and permits attorneys to “blow the whistle” by reporting externally in some extreme circumstances. These changes were fueled by a belief that a well-informed, willing, and diligent attorney can act as a gatekeeper, stopping its clients from committing corporate fraud or, if the client cannot be stopped, acting as a whistleblower to mitigate harm to the market. Not only are those provisions ineffective, but the entire premise behind those regimes is fundamentally flawed because of its failure to understand the attorney-client relationship, corporate structure, and corporate criminal wrongdoing. For any and all of these reasons, the idea of an attorney as a whistleblower is a myth.
Even worse, the failure of Congress to understand corporate and attor- ney behavior has left the market exposed to extraordinary criminal wrong-doing with only after-the-fact investigations, if anything, available to deter. More importantly, these regimes have left people—you, me, and our families—vulnerable to be preyed on in the name of a corporate profit. This is because at their core, corporate fraud scandals are about deception in conjunction with the use of tactics and structures that are legal and, at times, complex. Legal corporate structuring renders the whistleblowing mandate found in Sarbanes ineffective. Companies still have tools that were essential to the pre-Sarbanes fraud and market manipulation—namely, the ability to use business structures and rules defining the attorney-client relationship to evade detection. This article takes a novel approach of exploring the usage of legal business structures, the placement of attorneys within those struc-tures, and the role these activities have in corporate misconduct.
Link to article:
This piece was also featured on the Ipse Dixit podcast last fall. See link below.
Look out for my follow-up short piece regarding the lack of whistleblower attorneys surrounding the Trump administration.