Whistleblowers get 10 to 30

Recently, while going over the agenda for our upcoming 4th Annual Hedge Fund Operations and Technology conference with our Conference Director, Sarah Hathaway, I had an “ah-ha” moment. While we have written a number of blogs lately about the increase in the number of investigations and charges in regards to financial fraud (I even wrote a Christmas Carol around it), it never occurred to me to ask “Why so many now?” That’s where my “ah-ha” moment comes in. Turns out there is a whistleblower clause in the Dodd-Frank Bill, whereby individuals that turn in evidence of suspicious activities to the SEC or CFTC that turn into legitimate claims, get a cut of the settlement, 10 to 30% to be exact of any amount over $1 million dollars. So, using the $1 million minimum as an example, a whistleblower could collect anywhere from $100,000-$300,000, depending on the significance of information turned over, which if you ask me is a nice chunk of change.

Now, while I am sure this clause saves the government millions of dollars every year and does help to catch individuals that are up to no good, it does raise some concerns. For starters, employees may look at this opportunity as a gold mine and a faster way to making millions than winning the Mega Millions jackpot. You no longer have to be “In It to Win It,” you just have to find some dirt on your superior or colleague. The WSJ even reported that since the passage of Dodd-Frank, whistleblower suits have increased ten-fold. But what I have failed to find, however, is what punishment, if any, is brought against individuals that make false claims or what percentage of fraud cases reported actually turn out to be legitimate claims. We’ve seen names of reputable hedge funds and other financial firms splashed across the headlines recently with claims of fraudulent activity, but we haven’t seen much in the way of follow-up and whether investigators found anything incriminating. Perhaps the amount of money the SEC and CFTC recovers for those claims that turn out to be true far outweighs any time and money spent investigating false claims made by disgruntled employees. Also, I wonder what is this doing to corporate morale and trust? Are people going to be constantly watching and spying on their colleagues sitting at the trading desk next to them? Imagine the paranoia. But, then, what crimes might be prevented because of it?

While I understand the purpose for this clause and that good can come from it in detecting fraud that might otherwise go unnoticed, I hope whistleblowers aren’t the highest paid people on Wall Street this year. One can only hope that Wall Street’s finest won’t start growing mullets and going all Dog the Bounty Hunter on their peers.

About Maureen Lowe

President and Founder of Financial Technologies Forum, LLC. Editor-In-Chief of FTF News. Entrepreneur, Jersey Girl that recently returned to Jersey, Loves to Bake, Married to a Kiwi, First Time Mom
This entry was posted in Dodd-Frank, Financial Crime, Wall Street and tagged , , . Bookmark the permalink.

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