Consumer Fraud

Study finds whistleblower involvement leads to higher penalties, longer prison sentences

whistleblower Study finds whistleblower involvement leads to higher penalties, longer prison sentencesCompanies pay substantially higher amounts to resolve financial misrepresentation lawsuits when whistleblowers are involved, a new study published by the Social Science Research Network found.

The authors of the study analyzed court data from 1978 to 2012, looking at financial misrepresentation enforcement actions pursued by the U.S. Department of Justice and the Securities and Exchange Commission (SEC).

Controlling the analysis to account for the size of the alleged misrepresentation, the number of executives penalized, and several other factors, the researchers found that companies paid penalties 63 percent higher on average to resolve cases when a whistleblower was involved than in cases in which there was no whistleblower involvement.

“Even after holding all those things constant, we see that whistleblowers have a very big effect,” Nate Sharp, associate professor at Texas A&M University and one of the co-authors of the paper, told the Wall Street Journal.

The study accounted for all types of whistleblower involvement, not just lawsuits filed by plaintiffs on behalf of the U.S. government, such as in lawsuits filed under the whistleblower provisions of the False Claims Act. According to the Wall Street Journal, researchers also looked for other signs of whistleblower involvement, such as retaliation complaints submitted to the Occupational Safety and Health Administration (OSHA), which shares information about a whistleblower’s underlying allegations with the SEC.

Not only did corporations pay substantially higher penalties in cases with whistleblower involvement, but individuals convicted in connection with corporate penalties resulting from cases with whistleblower involvement received prison sentences that were about two-and-a-half times longer.

The study also found that cases with whistleblower involvement accounted for about 13 percent of all the enforcement actions researchers studied, and enforcement actions propelled by whistleblower tips took about 10 months longer to resolve than the other cases.


Wall Street Journal
Social Science Research Network