Reports of Financial Fraud Welcome As Whistleblower Program Comes to Force

Jack Humphrey, Regulatory journalist
August 12, 2011 /

The public can now report financial fraud and apply for rewards as the US Securities and Exchange Commission’s whistleblower program has come into force on August 12.

With the new whistleblower program officially becoming effective, the Securities and Exchange Commission today launched a new webpage for people to report a violation of the federal securities laws and apply for a financial award.

The program would invite more and more would-be whistleblowers to provide the SEC with high-quality information that may lead to the enforcement of administrative actions against securities laws violators.

The proposed program takes its mandate from Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which granted the SEC the authority to pay financial rewards to whistleblowers who provide new and timely information about any securities law violation.

Among other things, to be eligible, the whistleblower’s information must lead to a successful SEC enforcement action with more than $1 million in monetary sanctions.

The SEC’s new webpage includes information on eligibility requirements, directions on how to submit a tip or complaint, instructions on how to apply for an award, and answers to frequently asked questions.

“Early and quick law enforcement action is the key to preventing securities fraud and avoiding investor losses, and the whistleblower program gives us the tools to help achieve that goal,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.

Sean McKessy, Chief of the SEC’s Office of the Whistleblower, added: “Securities fraud is not a victimless crime.

“That’s why 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’s new whistleblower program beefs up the SEC’s ability to protect investors in several ways.

The SEC said it has seen an increase in the quality of tips over the past few months that it has been receiving from individuals since Congress created the program.

According to regulators, potential whistleblowers are encouraged to come forward sooner rather than later with “timely” information not yet known to the SEC.

With fewer than 4,000 employees to regulate more than 35,000 entities, the SEC admitted it 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

Employees who come forward are provided with new tools to protect themselves against employers who retaliate.

The whistleblower program provides significant incentives for employees to report any wrongdoing to their company’s internal compliance department before coming to the SEC. Therefore, companies that would prefer their employees report internally first are incentivized to a have credible, effective compliance program in place.

The SEC adopted final rules on May 25 to implement the Dodd-Frank whistleblower program, requiring individuals wishing to be considered for an award under the Whistleblower Program to submit an online questionnaire or the newly approved Form-TCR.

Prior to the enactment of the Dodd-Frank Act, the SEC only had authority to reward whistleblowers in insider trading cases.


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