The new whistleblower program that pays big cash rewards for tips about investment fraud has already resulted in a large number of high quality tips to the SEC, according to a news story this week on CNBC. According to the report, the SEC expects to receive 30,000 tips this year?just one year after the program was created under the Dodd-Frank financial reform act. SEC Enforcement Director is quoted as saying “we’re gonna get information hopefully sooner on in the life cycle of a fraudulent scheme, so there’s less investor loss, less harm.” In addition to helping the feds detect fraud in the securities industry, however, the program promises to pay big financial rewards to the whistleblowers whom report it.
The new program allows tipsters to blow the whistle on financial industry wrongdoing while protecting the identity of the whistleblower by allowing he or she to funnel information to the SEC through a lawyer. If the tip results in a fine or other monetary payment in excess of $1 million, the SEC must share somewhere between 10% and 30% of the recovery with the whistleblower and his or her lawyer?who will typically agree to work on a contingency percentage?depending upon how helpful the tip was in bringing about the enforcement action. In addition to funneling the information to protect the anonymity of the source, the whistleblower’s lawyer also has the important job of helping the SEC build its case and negotiating the best possible reward. The lawyer may also advise the whistleblower with respect to possible claims against the subject of the investigation, such as a possible securities fraud claim if the whistleblower is an investor or a possible employment law claim if the whistleblower is a past or present employee of the subject firm. (The new law prohibits discrimination or retaliation against whistleblowing employees and gives them the right to sue if it happens).
Whistleblower programs created for other federal agencies have grown dramatically in popularity?and payouts?in recent years. The CNBC piece reports that there were 43 whistleblower cases in 1988 resulting in $2 million in penalties and $97,000 in payments to whistleblowers, while in 2010, there were 573 cases generating $2.3 billion in penalties and paying more than $385 million to whistleblowers. Under Dodd-Frank, with the expected explosion of whistleblower claims against Wall Street now that the smoke is settling from the financial crisis, those numbers are expected to go much higher.
According to Craig T. Jones, a partner in the law firm of Page Perry, “Anyone connected with the securities industry who thinks they might qualify should investigate their legal options,” says Jones. “Our firm already represents investors of all sizes in securities fraud claims, and it makes perfect sense for us to also provide whistleblower representation where it is in the best interest of our clients.
There are many law firms who represent whistleblowers, but few have our background in the securities industry, and we are always willing to team up with other firms where it is a win-win for the client.” Jones points out that few law firms are experienced in both securities matters and whistleblower representation, and the potential rewards of Wall Street whistleblower cases are substantial enough to allow fee splitting between lawyers at no added cost to the client. Jones’ firm, Page Perry, is based in Atlanta but handles claims against investment firms all over the country.