Corporate whistleblowers can now collect more reward money
New rules means corporate whistleblowers can get even more rewards from the Securities and Exchange Commission, potentially millions more, and get it faster.
While the biggest rewards may be reduced under the new rules, they can still be staggering. In October, just weeks after the new rules were adopted, the SEC assigned an anonymous whistleblower $ 114 million– by far the biggest award in the whistleblower’s eight-year history. Telling the government about corporate wrongdoing can still make you rich, and some people think that’s a problem.
The Dodd-Frank Act established the program, which can pay whistleblowers 10% to 30% of the amounts the SEC collects for actions it takes based on “original information” provided by an individual. The SEC fines can be huge, and so can the rewards. In June, the SEC paid its the biggest prize of the time ever, $ 50 million, to someone who reported overcharging customers for foreign exchange trades at Bank of New York Mellon (The SEC never discloses the names or other details of the fellows, but the identity of the fellows became public). The previous record was a bounty of $ 39 million in 2018; the same year, two people shared a prize of $ 50 million. The SEC program may also pay rewards “arising from related actions of another agency”. The recent recipient of the $ 114 million prize got $ 52 million in the SEC’s case and the remainder in the case of a separate agency.
Most of the SEC’s rewards aren’t that big. About 75% of those are $ 5 million or less, and these are the ones that will be faster and potentially bigger under the new rules. Many whistleblowers and the lawyers representing them have complained that getting the money can take years. So now the SEC has set a default award at the top of the range: 30% of the amount raised, in cases where the resulting award is $ 5 million or less. If there are no ‘negative attribution factors’ – for example, the involvement of the whistleblower in the reported infringement – the Commission will not spend time deciding the amount and will quickly pay a bonus of 30%. “Decisions were bogged down in delay,” said Erika Kelton, a Washington DC-based lawyer who represents whistleblowers. “It could really speed things up.”
But for the big bucks – if you’re not looking at $ 5 million for an individual tipster, the Commission is tightening the rules. Until now, the amount of a scholarship has been based on two criteria: the importance of the information provided and the continued cooperation and assistance of the tipster. Now the commissioners will also take into consideration the amount of the bounty itself, meaning they could reduce the amount if it just seems too large. “They’re changing the rules,” Kelton says. “It’s a big black box and a concern for our customers.”
Is paying such giant bonuses a good idea? Jane Norberg, chief of the SEC whistleblower’s office, certainly thinks so. “Whistleblowers have proven to be an essential tool in the law enforcement arsenal to fight fraud and protect investors,” she said. And big rewards may be needed to entice tipsters, who are protected by federal law against retaliation from their employers, but who may nonetheless lose their jobs or become outcasts in their industry.
Yet “providing financial incentives for whistleblowing poses many problems,” says Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware and a long-time board member. “I believe in denunciation. I think it is effective. But the way they structured it [at the SEC], you discourage the whistleblower from going first. “
Following corporate scandals over the past 20 years –Enron, Volkswagen, Wells fargo—Many companies have established compliance programs that encourage employees to report bad behavior to a special compliance office or even directly to the board. Unlike calling the SEC, however, it won’t earn them a dime. Which one would you choose? Elson says the SEC program “is really damaging compliance programs.”
The irony is that big corporations and the SEC both want to encourage compliance. But in the real world, reporting is risky, and individuals who balance risk against reward will most likely continue to turn to the SEC – perhaps even more now.
More must-read stories of Fortune:
- Where is Biden another $ 1,200 incentive check?
- Kohl CEO insists its oversized beauty salons can compete with the new Ulta / Target partnership
- China wants to make its own chips. 2 failures in 1 week show how difficult it will be
- Former Yahoo CEO Marissa Mayer launches its first startup
- The hydrogen economy: Hyped for years, the most abundant element in the universe finally has its moment