The Securities and Exchange Commission (SEC) awarded its first payout under a new whistleblower program to an individual who provided the regulatory agency with information that helped expose an active Ponzi scheme.
The whistleblower received $50,000 for handing over documents that provided specific, credible, and timely information to the SEC, which prompted the agency to take enforcement action against the offending company.
In awarding the informant, the SEC chose to pay the maximum percentage allowable under the law – 30 percent of $150,000 it has so far recovered in the case. Additional court-ordered sanctions against the company amount to more than $1 million, and the whistleblower’s reward will grow as more money is collected in the case.
“Had this whistleblower not helped to uncover the full dimensions of the scheme, it is very likely that many more investors would have been victimized,” SEC Enforcement Director Robert Khuzami said in a statement.
The SEC’s new whistleblower program was established under the 2010 Dodd-Frank law. It aims to clamp down on financial fraud by encouraging whistleblowers to report illegal activity to the Commission. If the information provided by the informant proves instrumental to a successful prosecution, the informant receives 10-30 percent of the money collected in that case.
The law also compels corporate insiders close to the wrongdoing to provide better quality and more timely information, which makes it easier for the SEC to pursue cases. Quicker prosecution of fraud cases may also spare many people from falling victim to financial fraud.
Critics have expressed disappointment over the SEC’s decision to withhold specific details about the first case to be successfully tried under the new whistleblower laws.
“Paying an award to a whistleblower without lending transparency to the scheme and identifying the wrongdoer serves no public purpose,” one whistleblower lawyer told the Wall Street Journal.