New Whistleblower Program Leads To Big Payout

It's been sadly too often the case that government whistleblower programs find themselves in the news for all the wrong reasons. The SEC has been taken to task for failing to follow up on the thousands of tips it has received while the IRS appears to be unwilling to work with the many eager tipsters who have put their careers on the line to come forward with valuable information.

Given the typically grim news, it was refreshing to see this past week that the U.S. Commodity Futures Trading Commission (CFTC) announced that it had paid out money to an anonymous tipper, the first such payment in the program's history. The payment came to $240,000 for a tip that proved useful; showing how well run whistleblower programs can benefit not only the tippers, but also the agencies responsible for running the program.

The CFTC has not been forthcoming with many details about the tipster or the nature of the tip. The agency has said that it intends to comply with anti-retaliation laws, which require strict confidentiality to ensure the anonymous person is not exposed publicly.

The CFTC whistleblower program is relatively young, only having been created two years ago. The program was designed specifically to encourage whistleblowers to come forward with information about possible financial fraud. The tips usually involve claims that someone has engaged in market manipulation or made misrepresentations to customers as part of an investment scam.

The CFTC's program, which was created as part of the Dodd-Frank financial overhaul, says that any person who shares useful information with the CFTC, which ultimately leads to an enforcement action and sanctions exceeding $1 million, can collect a share of that sanction as an award. The rules stipulate that the percentage of the award will vary between 10 percent and 30 percent, depending on the specific facts of the case. In this case, the $240,000 payout means that the sanction paid had to be somewhere between $800,000 and $2.4 million, a pretty hefty fine.

Though the CFTC whistleblower payout is not as large as some paid by the SEC (including a 2010 payment for $14 million), many still believe the CFTC deserves credit for operating a program effectively enough to lead to any payouts at all. The payout is proof that the CFTC whistleblower program is attracting high quality tips and the cooperation of those working in the financial services industry.

The CFTC says that its own data shows that the number of tips it has received has increased dramatically in recent years and expects numbers to continue rising after word of the payout circulates. In 2012, the CFTC received only 58 tips to the whistleblower program while 2013 saw that number jump to 138.

Sources:

CFTC Hands Out First Whistleblower Award, by Jacob Gersham, published at WSJ.com on May 20, 2014.

U.S. Regulator Awards $240,000 to Whistleblower as Ontario Considers Incentives, by Barbara Shecter, published at FinancialPost.com on May 20, 2014.

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