The Securities and Exchange Commission (SEC), since its creation in 1934, has always had a program in place to report fraud, however this program has not had any financial incentive for people to report companies to the SEC until very recently.
Back in 2010, Congress passed a sweeping financial regulatory overhaul as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Part of this bill was a section dealing with whistleblowers reporting on violations of the nation's securities laws. Though this wasn't the first time whistleblowers were given legal protection, this was seen as the first substantial protection ever created. The new law also offered a financial incentive for employees to report, providing payments to whistleblowers of between 10% and 30% of the total of monetary sanctions recouped. Crucially, the law prohibited employers from retaliating against whistleblowers.
Though the program was rolled out in 2010, payments to whistleblowers have yet to be made due to the length of the reporting and the appeal process. Rumors have begun to circulate that the Commission will make the first big payments shortly. The SEC is said to be preparing for the number of complaints to increase once payouts begin and people see the program working as it was designed.
According to the Annual Report on the Dodd-Frank Whistleblower Program, the SEC received 334 tips in the first seven weeks of instituting the program. Most of those tips were related to market manipulation, corporate disclosures, financial statements and defrauding investors. That comes to an average of almost seven tips per day. The SEC says that they're good tips too. A spokesperson says, "We are encouraged by the specificity, the timeliness and the credibility of the information we're getting from the people who are submitting under the program."
While the SEC Whistleblower Program is relatively new, one can look at a similar plan launched by Congress in 2006 as a way to measure its success. The IRS Whistleblower Law enables private individuals to report underpayments of tax and persons otherwise guilty of violating the internal revenue laws. The IRS proram also awards whistleblowers a percentage of the taxes recovered (between 15% and 30%). The first of these cases under the IRS plan was wrapped up in April 2011. An internal accountant received a payment of $4.5 million after reporting his company's underpayment of more than $20 million in corporate taxes.
An October 2011 report by Littler Mendelson, a large law firm, found that 96% of executives surveyed said they were either moderately or very concerned about potential whistleblower claims against their companies in light of the new program. The good news is that this was before any money was ever paid out by the SEC. Just imagine how worried they'll be shortly.
Source:
SEC Whistleblowers Waiting For Big Payouts As Rumors Of First Award Mount, by Dan Froomkin, published at HuffingtonPost.com on May 31, 2012.
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Expanding Whistleblower Protections
The 2006 Reforms to False Claims Act
