SEC Announces Its Largest-Ever Whistleblower Awards

https://www.sec.gov/news/press-release/2018-44

316 69 8 years ago

Interesting to see the SEC finally grow some teeth, between the recent ICO enforcement actions, Theranos penalty, and now this. When I was in financial software (06-07) they were basically a joke; my employer had developed some software to help enforce a (relatively obscure) regulation and tried to sell it to them, and they were completely indifferent. Kind of a welcome change, if they manage to get people to be more interested in actual productive activity than fleecing dumber investors, but it'll take a while to change a culture.

topspin2• 8 years ago

"When I was in financial software (06-07) they were basically a joke"

I spent a few weeks causally reading testimony transcripts from the Madoff investigation when these were published by the SEC. The SEC was far worse than a joke. The SEC was an enabler. Years and years of Potemkin audits blessing Madoff and his Ponzi scheme as a worthy investment allowed hundreds of individuals and investors to rationalize their participation in the fiction. Complaints were filed, absurdities were pointed out and the SEC turned a blind eye to it all. By the time the gears finally stripped the SEC had had its nose rubbed in it multiple times.

bitumen• 8 years ago

I recently read a book called The Chickenshit Club that shined a fairly unflattering light on the rationale behind SEC and DOJ cowardice/enabling. I'm not sure that the SEC could have changed overnight, or if they're still going after slam-dunks, and these popular examples just fit the bill.

conistonwater• 8 years ago

The SEC was an enabler. Years and years of Potemkin audits blessing Madoff and his Ponzi scheme as a worthy investment allowed hundreds of individuals and investors to rationalize their participation in the fiction.

This doesn't sound right at all, the SEC doesn't conduct audits. See, for example, [1].

[1] Investigation of Failure of the SEC to Uncover Bernard Madoff’s Ponzi Scheme - Public Version https://www.sec.gov/files/oig-509.pdf

Alex3917• 8 years ago

When I was in financial software (06-07) they were basically a joke

Not unrelated, as a major reason these laws are now getting enforced is because people started violating them brazenly enough that it's become very profitable to enforce them.

maybeiambatman• 8 years ago

Does anyone know what kind of violations they reported (and which companies)?

xapata• 8 years ago

By law, the SEC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity.

jonknee• 8 years ago

Merrill Lynch insiders who supplied information for a 2016 case against Bank of America.

https://www.bloomberg.com/news/articles/2018-03-19/two-whist...

matt4077• 8 years ago

This program is a great example how setting the right incentives can destabilize a criminal conspiracy. It’s also worth noting that “traditional” law enforcement in white collar crimes is essentially the same: the possibility of criminal proceedings almost always outweighs the sort of incentives a corporation can offer lower-level employees. Would you risk jail time as a bookkeeper earning a 5-figure salary at #bigCorp Inc?

It’s arguably the same dynamic now befalling the presidential administration, only that the salaries are even lower than in the private sector, and you’re almost certainly looking at 6-digit bills from your lawyer just because working in the building will make you a potential witness.

_red• 8 years ago

Those incentives cut both ways. It also creates a huge avenue for rogue employees to suddenly craft themselves payout strategies.

The law firm that we use recently told about such an action they defended for another client. A disgruntled employee, who suspected they would soon be fired for lack of performance, "setup" certain actions, documents, prompted specific executive responses to emails, etc. The claim was that there was prejudiced hiring practices ongoing. However very little true evidence existed...most of it was in fact crafted by the employee.

The whistleblower action resulted in a meager voluntary fine that the company paid (didn't make financial sense for company to fight, easier to pay the $10K and move on). The ex-employee for their part received $1500. Currently they are in a recovery program for crack addiction.

CryptoPunk2• 8 years ago

In both East Germany and Revolutionary France people had their enemies destroyed through these kinds of methods. They either found some dirt on them (not hard to do when everything is illegal), and reported it to the authorities, or simply fabricated allegations and reported those.

In East Germany it meant loss of their job, and possibly imprisonment. In Revolutionary France it was off with their heads.

dopamean2• 8 years ago

Does the SEC have a line item in its budget for whistleblower awards? If so what do they do if there are a lot of cases to pay out? Can they run out of money for these things? I'd love to know what that process looks like.

Tobani• 8 years ago

I imagine that the whistleblowers get paid from the proceeds of fines levied due to the whistleblowing.

mikeyouse• 8 years ago

The whistleblower awards are typically a fixed percentage of the fines that the SEC levies (10% - 30% depending on circumstances). So if you blow the whistle on your company and the SEC fines them $100M, the SEC will get ~$80M and the whistleblower will get ~$20M.

So in that sense, no, they can never run out of funds to pay them off.

https://www.sec.gov/whistleblower

dopamean2• 8 years ago

Ah yes. I remember hearing about this now. Thanks!

psergeant• 8 years ago

The linked article adds significant detail

vl• 8 years ago

If you would trouble yourself with actually reading the article, you'll find explanation right there in the text.

refurb5• 8 years ago

Whistleblowing can be it's own business model, just do a google search for Ven-a-care.

Ven-a-care is a small pharmacy down in the Florida Keys. A few decades ago, it started to notice that the price it was paying for certain drug was very different from what the gov't thought they cost. Gov't price reporting is incredibly strict in pharma due to past mucking with the numbers.

So they started a lawsuit which was picked up by the DOJ.

Then they did it again, and again, and again.

Last I saw, they've racked up almost $600M in whistleblower awards.[1]

[1]https://www.cnbc.com/id/41491563

AlexCoventry• 8 years ago

It's great that Markopolos has found a way to make his forensic skills pay.

dmix2• 8 years ago

And in pharma it will continue to keep paying and paying as the fundamental problems creating 500% markups on drugs is never being solved [1]:

"What they discovered was that they were buying drugs for a buck and Uncle Sam was paying $5 for 'em,” Burns says. “Five-hundred percent markups, 1,000 percent markups, 2,000 percent markups that Uncle Sam was paying.”

[1] http://slatestarcodex.com/2016/08/29/reverse-voxsplaining-dr...

gadders• 8 years ago

Bradley Birkenfeld did quite well whistleblowing on UBS [1]. $104m.

https://en.wikipedia.org/wiki/Bradley_Birkenfeld#Whistleblow...

s73v3r_4• 8 years ago

Considering many of these people end up blacklisted from their industry, we as a society kind of owe it to them.

nl2• 8 years ago

What a strange story. He spent 40 months in prison for the things he blew the whistle on, and was the only person jailed for it.

Then he later received $104m, and yet still no one else went to prison.

Bromskloss2• 8 years ago

the price it was paying for certain drug was very different from what the gov't thought they cost

Is this a sign of wrongdoing? I don't know how things are supposed to work.

refurb5• 8 years ago

Drug pricing isn't transparent. The list price is publically available, but many manufacturers offer point of sales discounts or rebates. For some drugs the actual price might only be 10% of the list price.

This makes it hard for Medicare and Medicaid to know how much to reimburse. It's in the drug company's and the pharmacy's best interest that what Medicare pays is as high as possible, since the difference between acquisition cost and reimbursement is profit in the pocket of the pharmacy. It also benefits drug companies since that profit incentivized use and what do they care? It's not their money.

What the gov't does is require every drug company to report various prices. What is the average price the drug is sold at (inclusive of all discount/rebates)? What's the lowest price the drug is sold at? The gov't then uses this information to determine how much to reimburse.

Some of these companies simply reported the wrong prices to the gov't that resulted in inflated reimbursement. That violation falls under the False Claim Act (from the US Civil War) and the companies get sued for every pill they sold at that wrong price. So it adds up.

karpodiem• 8 years ago

They need to come down on Tesla. Musk's tweets/lies have driven the stock up to an established automaker's market cap.

The only problem is, Tesla is no where near profitable (they've lost money nearly every quarter except for two or three, I believe. And in those quarters, the profit was very small compared to other quarterly losses) as either of these companies, and the cash burn isn't stabilizing as they attempt to scale, it's increasing.

China/Europe deliveries have collapsed to start 2018. Bloomberg is tracking VIN assignments and pegs weekly production to 750 vehicles a week; that's only 25% to what Musk said they'd be doing by 2018.03.30.

S and X production during the M3 ramp up is reduced, based on channel checks.

Deliveries to regions in the US are staggered as M3's require an extensive amount of re-work before and after being received by a customer. Simply put - they want to fulfill all of their California orders to cut down on logistic costs/take payment, but their delivery centers can't handle the amount of service/re-work that would be required for all the new M3 owners.

This quarter should be an absolute bloodbath for TSLA - the end has already begun.

nl2• 8 years ago

This is hardly a secret, it’s why Tesla has so many short sellers.

maxxxxx6• 8 years ago

In any other industry you have to be happy to not get your life ruined as whistle-blower but in banking we again have to give them a huge amount of money to do something. It really bothers me. Why do we have to give millions of dollars? Anywhere else you would get a small reward or nothing.

bbaumgar• 8 years ago

It seems this is an argument for greater rewards for whistleblowers in other industries - not one for decreasing financial whistleblower rewards.

maxxxxx6• 8 years ago

But this is never going to happen so let's reduce it for bankers. With these sums they incentivize people to participate in shady stuff and then cash out by jumping ship on time.

matte_black• 8 years ago

Because if you blow the whistle you will never work in that industry again.

joering2• 8 years ago

Says who? I think with $100MM he can start his own financing/brokerage company and even paddle it on the idea of a “good guy starting financing corp”

matt_wulfeck• 8 years ago

While I appreciate a criminal getting caught, these types of systems that incentives private citizens spying and reporting on one another are bothersome on many levels.

s73v3r_4• 8 years ago

At the same time, we want whistleblowers, to expose wrongdoing by companies that otherwise would not be caught. And considering that many of them end up blacklisted by their industry, we kinda owe them something, so that they don't end up on the street due to doing the right thing.

turc1656• 8 years ago

Why does it bother you? Do you equate it with some sort subset of McCarthyism - i.e. turning the government loose on your neighbor, etc.? To me, it's more of a "see something, say something" deal. But the issue with that is that there is a substantial personal risk to doing so when one works in the industry and usually the employer they are blowing the whistle on. That means they run the risk of destroying their career (because most firms in their field will hot hire them after that)...all for "doing the right thing". That's why I think it's OK to have this incentived. There is substantial personal risk to them. It's not like reporting a suspicious bag at the airport.

dmix2• 8 years ago

Completely agree, the reward is a counter balance to the real-world risks. It's not some idealistic regulatory system that bets on a finite group of agents to catch malicious actors in a rapidly changing systems with millions of events each day.

Nor does it create massive inefficiencies in the system by forcing every company/employee/transaction to jump through arbitrary hoops in order to verify they are legit, designed to catch yesterdays criminals.

Instead of paranoid dragnets it promotes enforcement on a case-by-case basis, sourced closer to problem and by the people who actually understand the problem.

CryptoPunk2• 8 years ago

They were very common in East Germany:

http://www.spiegel.de/international/germany/east-german-dome...

East German Snitching Went Far Beyond the Stasi
Everyone knows about the Stasi and the extent to which it spied on the East German populace. But that was only a small part of the informing that went on. New research shows that snitching was vastly more common than previously thought.

Conducting a token sale without getting approval from the SEC is exactly the kind of "economic crime" that the East German citizenry would be snitching on today if East Germany had survived to this day.

fastball• 8 years ago

This only becomes a problem if you have laws that are oppresive.

And if you have laws that you deem oppressive, your goal should be to fix those laws -- whistleblower / "snitch" awards are only negative if the behavior being reported isn't "wrong".

CPLX• 8 years ago

These aren't examples of private citizens reporting on each other. This as an example of a member of an organization providing information on wrongdoing by that same organization, or a company pursuing claims against a company they do business with who is engaged in fraud.

Those things are not at all the same.

zyxzevn• 8 years ago

Can I report a few trillions that are missing in the Pentagon Budget? Send money to <redacted>.

kbutler• 8 years ago

By law, the SEC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity.

I wonder if they tell the IRS?

bastawhiz• 8 years ago

I would think it's in their best interest to not disclose anything to anyone. You don't want to do anything to disincentivize whistleblowers.

kevin_thibedeau• 8 years ago

Just don't dream of whistle blowing against the government itself or a federal contractor. Then you'll be utterly destroyed for such insolence.

anonytrary• 8 years ago

Pump-and-dump telegram groups are basically done if their members see a get-rich-quick opportunity from the SEC which surpasses the promised returns of the pump-and-dump scheme.

SEC Announces Its Largest-Ever Whistleblower Awards

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