Regulators Expect a Huge Volume of New Securities Fraud Cases Because of Whistlerblower Incentives


One good thing that might come out of the Dodd-Frank financial reform act is better self-policing by Wall Street. Not that Wall Street has changed its unscrupulous ways. But the Securities and Exchange Commission is expecting a big increase in tips from senior employees and third parties because of whistleblowing incentives in the new law that can reach seven-figures, as reported by CNBC in an August 9, 2010 article entitled “Wall Street Rewards to Trigger a Surge in Informants.”

“The scale of the awards reflects the high quality of whistleblower we hope to get ? people within a company, broker or other regulated firm that we might not have heard from before,” Stephen Cohen, an SEC official, was quoted as saying. “We’re expecting a tremendous response.”

Original information that leads to a successful SEC enforcement action will net the informant 10 per cent to 30 per cent of any sanction imposed over $1 million, plus a share of the proceeds from any related regulatory action or shareholders’ lawsuit, according to the article.

“We’ve seen recent settlements of SEC actions of up to $800m?.?.?.?this is a tremendous incentive for people to blow the whistle and for entrepreneurial law firms to represent them,” John Coffee, a law professor at Columbia University, was quoted as saying. Similar incentives for reporting fraud against the government, particularly Medicare fraud, have resulted in billions of dollars in payments to whistleblowers and law firms that specialize in representing them.

The SEC says it is ready to handle the expected influx of new allegations. “We already have systems in place, which we’re improving, for dealing with thousands of tips every year,” Mr Cohen was quoted as saying. “If this can help us to bring cases more efficiently and quickly, it will make us a more effective regulator.”

Page Perry is an Atlanta-based law firm with over 125 years collective experience representing clients in securities-related matters. For further information, please contact us.