The Securities and Exchange Commission (SEC), since its creation in 1934, has always had a program in place to report fraud, however this program has not had any incentive for people to report companies to the SEC until now.
In the summer of 2010, Congress passed a sweeping financial regulatory overhaul as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which includes whistleblower provisions for violations of the nation’s securities laws. Although congress previously afforded protections to whistleblowers that provided information concerning the violations of the securities laws under the Sarbanes-Oxley Act of 2002, those provisions were deemed weak and insufficient. The new law, for the first time, provides for payments to whistleblowers (between 10% and 30% of the total of monetary sanctions recouped) who provide information that the SEC uses in furtherance of an enforcement action. Additionally, the law prohibits employers from retaliating against whistleblowers.
Payments to whistleblowers have yet to be made under the SEC Whistleblower Program because of the length of the reporting and the appeal process. It is expected that these first payments will be made soon. The SEC is bracing for complaints to increase once payouts begin and people see the program working as it was designed.
While the SEC Whistleblower Program is relatively new, one can look at a similar plan launched by Congress in 2006 to gauge its success. The IRS Whistleblower Law enables private individuals to report underpayments of tax and persons otherwise guilty of violating the internal revenue laws. The IRS plan also awards whistleblowers a percentage of the taxes recovered (between 15% and 30%). The first of these cases under the IRS plan was wrapped up in April 2011. An internal accountant received a payment of $4.5 million after reporting his company’s underpayment of more than $20 million in corporate taxes.
One of the first laws that protected whistleblowers was the False Claims Act. Enacted by Abraham Lincoln during the Civil War (1863) and amended in 1986, Federal and State False Claims Acts have been the most successful weapon in combating fraud against taxpayers. Since its amendment, more than $33 billion has been recovered by federal and state governments across the United States as a result of false claims lawsuits. Whistleblowers have been paid upwards of $2 billion in statutory rewards for filing False Claims Act cases on behalf of the federal government.
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