As previously reported in "Street Sweeper," How To Blow The Whistle On Wall Street For Fun And Dollars (August 15, 2012), the 2010 Dodd-Frank Act authorized the payment of a bounty from 10% to 30% to whistleblowers whose information enabled a Securities and Exchange Commission ("SEC") enforcement action resulting in more than $1 million in sanctions .
On August 21, 2012, the SEC announced that it had made the first payout under its whistleblower program - the payment was for about $50,000.00, which represented the 30% statutory maximum payout of the amount collected in the enforcement action. In accordance with the law, the SEC cannot disclose any information that could reasonably be expected to reveal a whistleblower's identity; and, as this first award demonstrates, the whistleblower remains anonymous.
According to the SEC, the whistleblower:
provided documents and other significant information that allowed the SEC's investigation to move at an accelerated pace and prevent the fraud from ensnaring additional victims. The whistleblower's assistance led to a court ordering more than $1 million in sanctions, of which approximately $150,000 has been collected thus far. The court is considering whether to issue a final judgment against other defendants in the matter. Any increase in the sanctions ordered and collected will increase payments to the whistleblower.
The SEC did not approve a claim from a second individual seeking an award in this matter because the information provided did not lead to or significantly contribute to the SEC's enforcement action, as required for an award. To read the full text of the SEC orders granting and denying the whistleblower bounties, see:
The Chief of the SEC's Whistleblower Office, Sean McKessy, estimates that since the creation of his office in August 2011, the SEC is receiving about eight tips a day.
It will be interesting to see whether this new bounty program provides the incentive to motivate Wall Street professionals and outsiders with knowledge of misconduct or illegality to come forward. If the program works, the SEC will have additional eyes and ears watching the securities industry - the questions, however, is whether the resulting quantity of tips overwhelms McKessy and his staff, and whether the quality of such tips is more than merely pointing finger and suggesting that the regulator connect the dots. Further, there still remains a substantial reservoir of suspicion as to how hermetically sealed the so-called anonymous intake is and how it will stand up to the test of time.
One thing is for certain. be it smaller indie/regional brokerage firms or major players such as JP Morgan,Bank of America, Wells Fargo, UBS, Goldman Sachs, Morgan Stanley, and that ilk, a lot more folks are now going to wonder whether some colleague is looking over their shoulder or otherwise setting them up. If nothing else, that's a step in the right direction.