Eugene Grygo, Chief Content Editor, FTF News
As the Trump Team begins to focus on the regulators for the securities industry, my hope is that they keep the SEC’s Office of the Whistleblower intact because it’s turned out to be a rather reliable source of information about firms great and small that are in violation of securities law.
In fact, on Jan. 23 of this year, the SEC reported that it awarded more than $7 million to be split “among three whistleblowers who helped the SEC prosecute an investment scheme.”
Of course, we’ll never know the identity of the informers or the firm that had hatched the scheme. But that is beside the point. Those who are in a position to know how a firm is breaking the law feel free to come forward under the protection of this SEC effort.
“One whistleblower provided information that was a primary impetus for the start of the SEC’s investigation,” according to the SEC in its Jan. 23 announcement. “That whistleblower will receive more than $4 million. Two other whistleblowers jointly provided new information during the SEC’s investigation that significantly contributed to the success of the SEC’s enforcement action. Those two whistleblowers will split more than $3 million.”
In the $7 million case, “whistleblowers not only helped us open the investigation but provided critical information after the investigation was already underway,” says Jane Norberg, chief of the SEC’s Office of the Whistleblower, in a prepared statement.
The SEC order for the case also provides a few details about the claimants: “Claimant #1, an outsider, was a primary cause of the staff’s investigation into an investment scheme that defrauded hundreds of investors, many of whom were unsophisticated. Claimant #2 and Claimant #3, acting jointly, voluntarily provided new information to the Commission that significantly contributed to the success of the Covered Action.”
As the new administration find its footing, it’s clear that something will be done to the regulatory machines of the SEC and CFTC. Most likely, regulation will be frozen or reversed. But cutting the whistleblower effort seems foolhardy because it appears to have really helped the regulators and thus investors.
To date, the whistleblower program has led to SEC enforcement actions that “resulted in more than $935 million in financial remedies,” SEC officials say. “Since the SEC’s whistleblower program began, approximately $149 million has been awarded to 41 whistleblowers who voluntarily provided the SEC with original and useful information that led to a successful enforcement action.”
The SEC has also fielded whistleblower tips “submitted by individuals in 95 foreign countries between fiscal years 2011 and 2015,” according to the SEC. “The top five were the United Kingdom (291), Canada (216), China (164), India (153), and Australia (97).”
In addition, the SEC has demonstrated that it will challenge securities firms that try to undercut the program.
The regulator recently penalized asset manager BlackRock to the tune of $340,000 to settle allegations that it forced employees who were leaving the firm to give up their rights to the proceeds from whistleblowing on violations of securities laws. The anti-whistleblowing language in BlackRock’s separation agreement has been removed but was in place from Oct. 14, 2011 until March 31, 2016.
Let’s hope that the brain trust around President Trump will argue that it’s wise to invest in a little whistleblowing as a safeguard against the loosening of regulation.
In the meantime, more information about the whistleblower program is can be found on the SEC website.
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