A recent article by Reuters discussed the slow start but likely long-term success of two financial industry whistleblower programs that reward those who report corporate wrongdoing. The article discussed how the whistleblower offices of the Securities and Exchange Commission and the Commodity Futures Trading Commission have begun picking up steam in recent months, setting a good trend for the future.
Both whistleblower programs were started in 2011 as part of the Dodd-Frank Act. The programs were constructed to give those who provide vital information to an enforcement action a share of the reward, between 10 and 30 percent depending on the particular facts of the case. The goal is to incentivize corporate insiders to come forward with evidence of fraud or other wrongdoing.
So far, everyone agrees the programs are off to a slow but promising start. Until recently, the SEC had only paid out $170,000 in rewards to whistleblowers in the two years since its whistleblower office started. However, just this month one tipster received a $14 million reward for an enforcement action that resulted from the valuable information. Experts say they believe this reward is a sign of things to come and that as existing investigations progress further down the road that more and more high dollar announcements will be in store.
Numbers released by both the SEC and CFTC show that the numbers of tips have remained robust despite the slow start in paying whistleblowers. The SEC received 3,001 tips in 2012 alone while the CFTC, a much smaller regulatory agency, received 58. However, in 2013, the CFTC says it has already received 137 tips, an increase that shows as the organization's whistleblower program receives media attention more people will think to turn to the agency in the future.
Many in the industry say that though payouts have been slow to materialize, the problem is not the quality of the information contained in the tips or ineffective enforcement action on the part of investigators with the SEC or CFTC. Instead, the payouts have been slow to materialize due to the lengthy nature of enforcement actions. Most SEC enforcement actions take between two and four years to conclude. Because the offices were only created in 2011, this means that many investigations are still underway.
This lag time has caused many to suggest that over the coming year or two the SEC and CFTC will likely make numerous major announcements of whistleblower rewards. In fact, one attorney who has handled such actions in the past suggested that in the not-so-distant future it could very well be the case that the majority of successful SEC actions originate from information provided by whistleblowers.
The hope is that with rewards like the recent $14 million case will increase awareness of the whistleblower programs and eventually prompt more insiders to come forward with the information they have in their possession. To help promote the message, the directors of both the CFTC and the SEC say they intend to go on a kind of road show, promoting the program to trade group meetings and bar association events across the country.
Sources:
Bigger Payouts Seen for U.S. Financial Market Whistleblowers by Sarah Lynch, published at Reuters.com on October 1, 2013
Q&A: Christopher Ehrman, Director, CFTC's Whistleblower Office by Rachel Louise Ensign, published at WSJ.com on October 18, 2013
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