Consumer Fraud

SEC whistleblower program a success, study finds

whistleblower 2 370x210 SEC whistleblower program a success, study findsJust three years since lawmakers created the U.S. Securities and Exchange Commission’s (SEC) Office of the Whistleblower to better police Wall Street, the program has been a tremendous success, resulting in larger penalties and tougher prison sentences, a new academic study has concluded.

Researchers from Arizona State University, American University, Texas A&M University, and the University of Iowa collaborated on the study, looking at fines and penalties resulting from whistleblower-driven SEC and Justice Department enforcement actions from 1978 to 2012, the year the SEC’s Office of the Whistleblower launched. Their goal was to determine whether whistleblowers have any measurable impact on the outcomes of SEC enforcement actions.

From those figures, the study’s authors established a benchmark by which they compared the outcomes between SEC actions with and without whistleblower involvement. They found that SEC whistleblower involvement in cases resulted in a “significant increase in penalties.”

Whistleblowers helped the SEC generate $16.86 billion more in penalties for fraud and other wrongdoing than the agency would have obtained without their involvement. Whistleblower involvement also doubled the number of offender prison sentences, and those sentences tended to be harsher by an average of 21.55 months.

Also, by providing internal information and other tips, whistleblowers give authorities an effective “road map” that usually expedites the resolution of SEC enforcement actions, the researchers found. Occasionally whistleblower tips can prolong the enforcement process because they give regulators more information to investigate. In such cases where an “overload” of information must be investigated, the enforcement process is prolonged by more than 10 percent.

Overall, however, whistleblower involvement leads to fraud cases that SEC regulators may never have clued in on and gives them access to information they may never otherwise obtain. “These findings indicate whistleblowers are a valuable source of information for regulators in the investigation and prosecution of firms and their managers,” the researchers stated.