The Whistleblower Industrial Complex

Abstract

Although the whistleblower programs (WBPs) created by Dodd-Frank have received universal acclaim, little is known about how they actually work. In 2021, the Securities and Exchange Commission (SEC) received an average of forty-nine whistleblower tips every workday. Success depends on sifting through this avalanche of tips to determine which ones to investigate. To date, however, the tip-sifting process has been entirely shrouded in secrecy. This Article breaks new ground. It offers a rare look inside the WBPs administered by both the SEC and the Commodity Futures Trading Commission (CFTC), shining a bright light on the critical role played by private whistleblower attorneys in the tip-sifting process. Using a new dataset comprised of information I obtained under the Freedom of Information Act, I find (among other things) that tipsters represented by lawyers appear to significantly outperform unrepresented ones, repeat-player lawyers appear to outperform first-timers, and lawyers who used to work at the SEC appear to outperform just about everybody. The upshot is that the SEC and CFTC have effectively privatized the tip-sifting function at the core of the WBPs. Private lawyers have earned hundreds of millions of dollars in fees from these programs, with a disproportionate share going to a concentrated group of well-connected, repeat players. Unlike traditional plaintiff-side securities attorneys and attorneys who represent clients seeking government payments in many other contexts, private whistleblower lawyers operate free from virtually all public accountability, transparency, or regulation. I highlight significant efficiency and accountability deficits imposed by this private outsourcing program and propose reforms to realign these private actors with the public interest.