The SEC’s new whistleblower office, which officially opened August 12, hopes to have a significant effect on corporate and stock broker fraud.
Under this new program, cash awards will be issued to corporate employees who report fraud to the SEC in order to expose corporate crime. Individuals who report fraud under this program could receive up to 30 percent of the amount that is collected from the guilty party. To qualify, the tipster must volunteer new information that leads to a successful collection of at least $1 million in fines.
“Through their knowledge of the circumstances and individuals involved, whistleblowers can help the commission identify possible fraud and other violations much earlier than might otherwise have been possible," SEC officials say. "That allows the commission 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.”
Though many are singing the praises of this new program, it has been a hotly-contested issue for quite some time with many objections, especially from corporations and corporate lawyers. Plans for the office were announced in November and a six-month corporate interests lobbying campaign followed. Participants in the campaign included Citigroup, Google, General Electric, JP Morgan Chase and the United States Chamber of Commerce. This campaign included more than 1,300 forms letters and 200 comments about the program. Sean McKessey, Chief of the SEC Office of the Whistleblower, said that he was prepared for the negative reactions to the proposal because “virtually every side of the argument told me that they were going to sue me — or us.”
The central argument that corporations have asserted is that the program will discourage whistleblowers from reporting fraud within the company first, thereby undermining company policies. However, McKessey maintains that the way the office policies are set up is valid because employees will be able to report fraud even if their bosses are involved. Furthermore, any whistleblowers will have incentive to report fraud internally first, as doing so can increase the amount of the award.