Regulators hope to make whistles echo on Wall Street





Whether its laundering money for drug cartels, manipulating benchmarks or trading insider information, we have already seen a fair share of scandals and frauds this year. Our economic condition has made it crucial to provide increased transparency, due diligence and regulations to increase investor trust and to begin repairing the finance industry’s damaged reputation. So what measures are being taken to spot and prevent such acts of fraud from occurring again?

The Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into federal law by President Obama in 2010, has a section specifically dedicated to the “Whistleblower Program”. This program’s goal is to encourage employees and corporate insiders to report any fraud or wrongdoing they come across in their companies.

However, this law is nothing new- Sarbanes–Oxley Act of 2002 also had a “False Claims Act”, which provided employees financial incentives to report fraud to the SEC. However, the newer version has increased the scale of the financial incentive. The ‘whistleblower’, the individual that reports a wrongdoing, could receive an award that amounts to 10-30 percent of the penalties faced by the company accused (in excess of $1 million). So how many whistles have been blown?

Well, just last month the SEC reported the first whistleblower award of $50,000 to an individual that reported information that was critical in stopping a Ponzi scheme. And yesterday, a former UBS banker, Bradley Birkenfeld, received a whooping $104 million from the SEC for providing insider information regarding UBS's illegal practice of encouraging secret offshore accounts.

Such enormous monetary incentives ought to shed light on more frauds and wrongdoings, right? Not necessarily. According to a new study by Ethics Resource Center, the percentage of employees that experienced backlash, or retaliation, for reporting misconduct increased from 15% in 2009 to 22% in 2011. Such retaliation decreases the likelihood of employees reporting misconduct or reaching out to the SEC. But we can hope that the recent rewards encourage more individuals to rise above the potential backlash and come forth to do the right thing, even if it is for a purely monetary reason. 


Written by: Ritika Gawande 
Photo credit: http://www.darkgovernment.com/