With the payment of its first whistleblower reward last week, the SEC has declared loud and clear that its recently created Whistleblower Office is officially open for business. Click here for SEC press release. While relatively modest in amount — only $50,000 for now — what is particularly notable about the award is that it represented 30 percent of the total amount the government has so far collected from the perpetrators of the fraud. And the SEC has indicated that this reward will increase concomitantly with any additional funds the SEC collects from the fraudsters. This is the maximum take allowed under the whistleblower provisions of the Dodd-Frank Act.
Even more noteworthy than the reward, however, is how much attention the SEC has given to the reward and the critical role this whistleblower — who’s identity the SEC has kept secret — played in uncovering the fraud. Not only was it the exclusive subject of an SEC press release. It was also trumpeted by the most senior officials at the agency. SEC Chief, Mary Shapiro, proclaimed that the “whistleblower program is already becoming a success [with] high quality tips that are saving our investigators substantial time and resources.” And the head of the SEC’s Enforcement Division, Robert Khuzami, similarly pronounced that without the help of the whistleblower in this case, “it is very likely that many more investors would have been victimized.”
The SEC is obviously sending out a strong signal to potential whistleblowers that they will be well received and rewarded for coming forward. The head of the SEC’s Whistleblower Office, Sean McKessy, could not have been any clearer: “The fact that we made the first payment after just one year of operations shows that we are open for business and ready to pay people who bring us good, timely information.” This is quite a change from the mixed feelings, skepticism, and even downright hostility that whistleblowers have often faced when approaching the government with evidence of fraud. It also represents a complete about-face from the muted mention of whistleblowers in the typical government press releases reporting on successful fraud-busting efforts. In most of them, there is no indication that a whistleblower was involved at all.
These are all very good signs for a government agency that was up until recently very much asleep at the switch. It was only a few years ago that the Enron and Madoff scandals rocked us from our complacent slumber into the stark reality that the market does not always take care of itself. That the government does serve an important role in ensuring everyone plays by the rules and taking swift action against those who do not. That the Harry Markopoloses of this world need to be acknowledged and embraced, not ignored and cast aside.
So while some agencies are still struggling with how they should be dealing with whistleblowers. See The IRS Whistleblower Office — A New Beginning or Just a Lot of Lip Service. And others are questioning the wisdom of providing financial incentives for whistleblowers to step forward. See Expanding Protections for Antitrust Whistleblowers — A Good Start But Not Nearly Enough. At least one agency seems to be clear in its recognition that only through a strong whistleblower program will it truly be able to put a stop to the rollercoaster of financial fraud on which we have all been riding.
* * *If you would like more information or would like to speak to a member of Constantine Cannon’s whistleblower lawyer team, please click here.