Financial fraud can cost investors millions of dollars. It can undermine the foundations of a fair and competitive market. And, as demonstrated by the Enron and Bernie Madoff scandals, it can even impact the national or global economy.
Federal securities regulations are designed to protect investors, consumers and the economy as a whole. But those regulations have little effect if wrongdoers never get caught. Whistleblowers play a powerful role in bringing violations to light.
What is the origin of the program?
In 2010, Congress established the SEC whistleblower program as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The program aims to prevent such scandals by incentivizing whistleblowers to report misconduct before it escalates to such a far-reaching scale.
That misconduct can include any violations of federal securities law, including:
- Insider trading
- Investment fraud
- Violations of the U.S. Foreign Corrupt Practices Act (FCPA) such as bribery
- Ponzi schemes
- Unregistered securities
- Independent audit violations
These are just a few examples of the wide range of misconduct that can form the basis of a whistleblower claim.
What protections and rewards can whistleblowers claim?
Under the SEC program, whistleblowers are entitled to protections against employment retaliation. They also may be entitled to a significant financial reward. To be eligible, the information provided by the whistleblower must have resulted (or significantly contributed to) monetary sanctions totaling at least a million dollars.
Whistleblowers are often employees of the offending organization. However, that’s not a requirement. They can submit information anonymously, provided they’re represented by an attorney.