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That must have been some tip.
The SEC set a new record late last week when it issued nearly $279 million to a corporate whistleblower. It’s a massive payout for a program that was nearly scuttled just a short time ago — and that research suggests has ethical issues of its own.
For obvious reasons, the SEC closely guards the identities of tipsters. That means there’s no knowing who scored the big award, or even which companies and/or corporations were embroiled in a scheme. But here’s what we do know: the scope of the uncovered fraud must have been fairly massive, given that the SEC grants whistleblowers awards of 10% to 30% on collected fines for anything over $1 million. The payout more than doubled the agency’s standing record — a $114 million prize issued in October 2020.
It’s the latest uptick in a now-yearslong trend of whistleblower payout inflation:
- While the program began in 2010, all of the 10 largest payouts to date have come since 2018, according to Zuckerman Law, which specializes in whistleblowing protection and law. In fiscal year 2021, the SEC awarded a record $564 million to 108 whistleblowers.
- Last August, the SEC overturned a series of rules put in place in 2020 that limited the amount whistleblowers could receive. Under those short-lived curbs, the SEC could limit the size of awards if tips led to actions by other agencies.
Proponents of strong whistleblower laws say a return to large payouts can be key to snuffing out corporate crime. “This award will have a massive chilling effect on Wall Street frauds,” Stephen M. Kohn, a whistleblower attorney unconnected to this case, told The Wall Street Journal.
Blowing the Whistleblower Whistle: Still, Whistleblower Inc. is apparently a thing. A study published a year ago in the Yale Journal on Regulation by University of Kansas School of Law professor Alexander Platt found there may be something of a burgeoning whistleblower industrial complex. “Tipsters represented by lawyers significantly outperform unrepresented ones, repeat-player lawyers outperform first-timers, and lawyers who used to work at the SEC outperform just about everybody,” the study found. Sounds like somebody needs to blow a whistle.