On March 29, 2010, the Inspector General of the Securities and Exchange Commission (SEC) issued a report assessing the SEC’s bounty program (i.e., payments to whistleblowers). The report concludes that the bounty program has been virtually useless to date and makes recommendations for how to enhance the program. The SEC’s review of the program was prompted by its failure to deal successfully with reports that it received from whistleblowers about Madoff.
Currently, the SEC has authority to award a bounty to a person who provides information leading to the recovery of a civil penalty from (1) an insider trader, (2) a person who tipped information to an insider trader, or (3) a person who directly or indirectly controlled an insider trader. The SEC is not required to pay a bounty, rather it has sole discretion whether, when, and in what amounts, payments are made. The SEC is limited by a maximum total bounty payment of 10 percent of the amount recovered from a civil penalty pursuant to a court order. That said, the SEC claims that in the few instances in which it has paid a whistleblower, it has paid the maximum 10 percent.
The SEC recently asked Congress to expand its authority to permit payments to a whistleblower if information provided to the SEC results in monetary sanctions exceeding $1 million from any judicial or administrative action brought by the SEC. Obviously this would incentivize whisteblowers to come forward to expose not just insider trading but also, for example, fraudulent conduct such as that engaged in by Madoff. In addition, the report makes specific recommendations to enhance the bounty program.
Now that the SEC is taking this program seiously, whistleblowers will have the opportunity to help ensure the integrity of our great capital markets and be paid handsomely for doing so. In addition, those individuals that do violate the law will hopefully be brought to justice more often and more quickly.
If you have questions about the SEC’s initiatives or about a potential violation of the securities laws for which this program applies, contact Jeffrey Wittenberg at (877) 352-2010.