The Securities and Exchange Commission’s new whistleblower rules went into effect Friday, paving the way for tipsters who expose corporate fraud to collect rewards that could total millions of dollars.
To highlight the official start of its new whistleblower bounty program, the SEC launched a Web page, www.sec.gov/whistleblower, that includes information on eligibility and directions on how to submit a tip.
Under the Dodd-Frank financial reform law, whistleblowers who provide useful and original information could be eligible to receive between 10 percent and 30 percent of penalties of $1 million or more that the SEC collects in criminal or civil cases.
In May, the SEC spelled out in detail how whistleblowers seeking the bounties should file complaints and when they may qualify for the awards. The commission approved the new rules after a contentious rulemaking process that pitted whistleblower advocates against corporate representatives who claimed that the bounty program could undermine companies’ internal compliance programs.
The U.S. Chamber of Commerce and dozens of big companies such as Google Inc. and JPMorgan Chase & Co. argued that the SEC should require bounty-seeking tipsters to report fraud first to their employers, rather than the government.
The commission voted 3-2 to reject that proposal and to allow whistleblowers the option of coming to the SEC first. SEC chair Mary Schapiro, who voted in the majority, said giving whistleblowers the choice of coming directly to the SEC “makes sense…because it is the whistleblower who is in the best position to know which route is best to pursue.”
On Friday, Sean McKessy, chief of the SEC's Whistleblower Office, said in a media release: "Securities fraud is not a victimless crime. That's why it is so important for people to step forward when they witness an ongoing securities fraud or learn about one that has taken place or is about to occur. Our new whistleblower award program makes it easier for people to take that step."
The SEC said its new whistleblower program bolsters its ability to fight corporate crime in several ways. Among them:
- Better Tips: “Over the past several months, the SEC has seen an increase in the quality of tips that it has been receiving from individuals since Congress created the program.”
- Timely Tips: “Potential whistleblowers are incentivized to come forward sooner rather than later with ‘timely’ information not yet known to the SEC.”
- Maximizes Resources: “With fewer than 4,000 employees to regulate more than 35,000 entities, the SEC cannot be everywhere at all times. With a robust whistleblower program, the SEC is more likely to find and deter wrongdoing at firms it may not have otherwise uncovered.”