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Does it Pay to Blow the Whistle?

The SEC’s Whistleblower Program is just over one year old now. It was enacted by Dodd Frank to clean up Wall Street by giving “monetary awards to eligible individuals who come forward with high-quality original information that leads to a Commission action”.

For a whistleblower to get a reward, over $1 million in sanctions has to be ordered for the reported offense, at which point the payout will be between 10% to 30% of the amount collected. The CFTC, IRS and the Justice Department also have similar programs (with differing payout percentages).

The SEC recently released its report on the Whistleblower Program for 2012. Last year, 3,001 whistleblower tips were received from 50 states and 49 countries (about 8 tips are received every day). And while the media typically focuses on the whistles blown against big corporations, the majority of complaints came against brokers and “advisors” who were scamming investors.

The SEC has stashed away $450 million to pay claims…but so far has only paid out just under $50,000.

The first, and only, whistleblower claim was paid on August 21st of last year. The award totaled $45,739.16.

The SEC’s program is meant to “minimize the harm to investors, better preserve the integrity of the United States’ capital markets, and more swiftly hold accountable those responsible for unlawful conduct”. But with 3,000 tips and just one small payout, it remains to be seen whether it will be effective. Whistleblowers are no doubt frustrated with the length of the process, and no doubt some potential whistleblowers simply aren’t coming forward.

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