Huge Whistleblower Rewards: Do They Reduce Misconduct?

On Election Day, the U.S. Securities and Exchange Commission announced an award of $28 million to an anonymous whistleblower who identified a key witness and provided other critical information to an SEC investigation that produced hundreds of millions in fines.  In the month leading up to the election, the SEC awarded four whistleblowers a total of over $150 million.  On October 22, the SEC and another agency had announced a single whistleblower would receive $114 million for help in a joint investigation.  Under the Dodd-Frank Act, government agencies can award whistleblowers from 10 to 30 percent of the money collected when monetary sanctions exceed $1 million. 

The whistleblower award program has been controversial.  Corporations have argued that employees may concoct fake stories, or choose to report violations to government agencies rather than use the company’s internal fraud hotlines or whistleblowing programs.  The legislation hoped to strengthen internal programs, giving companies an incentive to act on internal reports rather than sweep them under the rug.  Defenders of the program argue that this has been the effect, though it is hard to measure.  Whistleblowers are urged to use the company’s internal systems, and it appears the government awards may be higher to those who tried to use the internal systems before taking their information directly to government agencies.  In the $28 million award, the SEC stated the whistleblower reported both to the internal program and to the SEC directly.

Sadly, all this is necessary because of the company’s tendency to suppress bad news and avoid admitting its own frauds.  If the federal whistleblower program causes companies to act quickly and decisively on internal reports, that this a good thing.  If the company’s prompt action discourages other employees and executives from attempting frauds, then misconduct has been averted. 

SEC Press Release:  https://www.sec.gov/news/press-release/2020-275