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Another Whistleblower Blow-Up

An ex-AIG lawyer sued the company on Friday in federal court in New York City. Kimberly Lebron claimed she was fired after complaining to AIG brass about their plan to sponsor a six week trip by an official from Korea Post. She said the arrangement was a quid pro quo for a $50 million investment by Korea Post in an AIG real estate fund and would violate the Foreign Corrupt Practices Act.

AIG said the claim has no merit. Lebron's earlier complaint to the Labor Department under the Sarbanes-Oxley whistleblower protection provisions was dismissed because she worked at an AIG subsidiary. A Reuters report about Kimberly Lebron v. AIG Inc et al (Case no. 09-04285) is here.

Last month we reported a settlement in a similar suit by General Electric's former in-house counsel, Adriana Koeck. She claimed she was fired in retaliation for whistleblower activity protected by Section 806 of the Sarbanes-Oxley Act (18 U.S.C. § 1514A) and state law after she warned her superiors about possible FCPA violations in Brazil. She leaked information to the press about GE's alleged conduct, and GE sued her for breaching her duty of confidentiality. The terms of the settlement that ended all of the litigation weren't disclosed.

We don't have any views about the merits of either case. But we have concerns about what the cases might mean for company lawyers and compliance.

When lawyers allege they were fired for raising compliance concerns, they typically disclose privileged information to support their claims. They're in a tough spot -- they can only prove they were fired for retaliation by revealing the company's underlying behavior that they complained about. But by disclosing it, they'll probably breach their professional obligations of confidentiality.

All company lawyers are privy to the inner workings of their organization. They hear the secret musings about how to sell the company's goods and services. But laymen aren't always expected to know all the implications of what they're talking about; that's why the lawyers are there -- to help everyone stay on the right side of the law. So when those secret deliberations become fodder for a lawsuit, someone's expectation of privacy is violated.

In all companies, lots of different ideas go up on the whiteboard to be vetted and debated, criticized and critiqued. Only a few ever make it into the field. That's how consensus-building works. But if early-stage ideas might be disclosed by the lawyers and cause trouble later on, there'll be less debate of the kind the attorney-client privilege is intended to promote. And companies paying attention to the retaliation suits might change the way they treat their lawyers and compliance professionals -- leaving them out of discussions, or worse, not hiring them to start with.

To be clear, lawyers are entitled to protection against retaliation for blowing the whistle. In fact, lawyers are especially vulnerable. They know the company's secrets and they have a duty to prevent illegal conduct from happening. But whenever lawyers, for whatever reason, go public with protected information, the profession is tarnished and the cause of compliance is hurt.

What's the fix? How about plugging the gap in SOX to make sure whistleblower protections cover lawyers (and all employees) who work at subsidiaries of listed parents? The limited coverage now is forcing claimants into federal court who might not want to be there. Beyond that, perhaps a special tribunal -- under the auspices of the Labor Department and the courts (too bad we don't have a national integrated bar group) -- with an equal measure of protection for company lawyers and their employers' privileged information.
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Full post as published by The FCPA Blog on May 03, 2009 (boomark / email).