Given the relatively positive news recently released about the IRS whistleblower program (payouts are up dramatically), it's sad to hear that the SEC has not had similar luck. The newly created SEC whistleblower program, enacted under the Dodd-Frank Act, was viewed by many as one of the best ways to help clean up misbehavior on Wall Street. The hope was that by incentivizing those who witness the bad behavior to come forward, the financial industry would learn to clean up its act. Unfortunately, numbers show that the program has yet to work in the way it was hoped.
The whistleblower program works by giving money to those people that "voluntarily" provide "original" information which leads to a successful enforcement action and monetary sanctions greater than $1,000,000. The awards range from between 10 and 30 percent of the amount collected. Whistleblower submissions are only considered voluntary if the individual provides the submission prior to an official request for information relating to the subject matter of the submission. Submissions are not considered voluntary if the individual is required to report the information by law or because of their contractual obligations with a company.
New numbers released by the Securities and Exchange Commission show that while tips have been flowing in at a fairly rapid clip, some 3,000 whistleblower reports, not much money is flowing out of the agency. The report revealed that the thousands of reports, several times more reports than come in to the IRS whistleblower program, came from all 50 states and from 49 different countries.
The numbers are impressive and indicate a bit of good news, people are coming forward, but there's little progress in terms of paying out money to whistleblowers. Last year the SEC paid out less than $50,000 in claims, an utterly insignificant figure relative to the more than $450 million war chest the agency has amassed.
Given the lack of dollars going to whistleblowers, some have said that many on Wall Street who may have been inclined to come forward are frustrated and may not be bringing forward valid claims because they were scared off by the overly bureaucratic process.
One proposal to help encourage those on Wall Street to come forward with reports of misdeeds is to create a kind of trust fund that will provide payouts to whistleblowers early on in the process. Given the length that such claims take, with investigations and trials happening before any money is awarded, many whistleblowers may be scared away. The trust fund would work by giving money to help tide the whistleblowers over for what can be a lengthy fight.
Sources:
SEC Whistleblower Fund: 3,000 Tips, Little Payout by Chris Tobe, published at Marketwatch.com on February 6, 2013.
The Rise of SEC Whistleblower Cases an Interview with Erika Kelton, published at CorporateCrimeReporter.com on February 5, 2013.
See Our Related Blog Posts:
Expanding Whistleblower Protections
The 2006 Reforms to False Claims Act
