One of the suggestions I made in the new chapter of Bailout Nation (written for the paperback prior to fin reg passing) was some common sense advice to the SEC:
“To root out more corporate fraud, [the SEC] should establish an aggressive whistle blower program that rewards those who identify fraud with a percentage of any recovery of penalties imposed (similar to the program the IRS has).”
It turns out that the the financial reform legislation has big cash rewards to whistleblowers who report fraud and other wrongdoing at publicly traded firms and Wall Street banks:
“Under the program, which is already live, anyone who provides a tip that leads to a successful Securities and Exchange Commission action will be able to collect between 10% and 30% of the amount recovered — as long as the total amount exceeds $1 million. This means the minimum payout is $100,000. The whistle-blower could be a company insider or a private investor, if they’re able to offer information or analysis that leads to an action. And with potential payoffs netting millions — or even tens of millions — of dollars, experts are bracing for a surge in tipoffs.”
We should look forward to the annual SEC reports of how much in fraud and corruption was rooted out by whistle blowers.
I also expect to see this become somewhat institutionalized — we might see some well capitalized hedge funds hiring or funding whistle blowers to gain insight into stocks to short;
I wonder if we might see a new hedge fund model: A fund that is formed and funded to literally chase whistle blower rewards with a similar pay structure as traditional 2/20 hedge funds.
SEC Now Offering Big Payoffs To Whistle-Blowers
Time, Aug. 19, 2010