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SEC pays whistleblower $22 million for securities fraud tip

by Greg Klein | August 30, 2016

Detailed information and extensive assistance brought an informer more than $22 million, the U.S. Securities and Exchange Commission announced August 30. It’s the SEC’s second-highest award, following a $30-million payout in 2014.

The anonymous tipster worked for the offending firm, which wasn’t named by the SEC.

SEC pays whistleblower $22 million for securities fraud tip

“Company employees are in unique positions behind the scenes to unravel complex or deeply buried wrongdoing,” said Jane Norberg, acting chief of the SEC’s Office of the Whistleblower. “Without this whistleblower’s courage, information and assistance, it would have been extremely difficult for law enforcement to discover this securities fraud on its own.”

In June 2015, Norberg told an Ontario Securities Commission roundtable that the SEC had paid 17 people a total of more than $50 million over four years of operation. The largest reward at that time was over $30 million. The total now surpasses $107 million, divvied up between 33 recipients.

Rewards can range between 10% and 30% of money collected when sanctions exceed $1 million, the SEC stated. “No money has been taken or withheld from harmed investors to pay whistleblower awards.” The SEC protects tipsters’ confidentiality.

Last month the OSC became Canada’s first regulator to offer such rewards. Payouts can range from 5% to 15% of sanctions and/or voluntary payments by companies of at least $1 million. The maximum reward comes to $1.5 million, but can increase to $5 million should the penalty exceed $10 million.

An e-mail from OSC rep Kate Ballotta confirms that the program has already received tips but doesn’t state whether payouts have been made yet. “Another securities enforcement tool unique to the OSC,” she writes, is the no-contest settlement program in which five cases have resulted in about $200 million being returned to investors.

In Quebec, l’Autorité des marchés financiers launched a reward-less whistleblower program in June, after AMF research found “confidentiality is what primarily motivates whistleblowers to report incidents.”

The Prospectors and Developers Association of Canada opposed the OSC rewards, arguing they could encourage “bounty-hunting behaviour and framing companies for financial gains.” PDAC also warned that “overly cautious issuers” might face extra costs for additional legal advice.

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