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Is the SEC Office of the Whistleblower an example of over-regulation or added security to the Capital Markets?

As part of the Dodd-Frank Act, signed by President Obama on July 21, 2010, the Securities and Exchange Commission (SEC) was required to amend the Securities Exchange Act of 1934, to establish a separate office within the SEC to administer a whistleblower program. On May 25, 2011, the amendment was finalized. On August 12, 2011, the Office of the Whistleblower in the Division of Enforcement went live.

Results are as follows -

  • "Annual Report on the Dodd-Frank Whistleblower Program" (November 2011) - For the two months of operations in 2011, 334 tips were received.  Top three issues - Manipulation (16.2%); Offering Fraud (15.6%) and Trading Pricing (5.1%).
  • "Annual Report on the Dodd-Frank Whistleblower Program" (November 2012) - For the twelve months of operations in 2012, 3,001 tips were received.  Top three issues - Corporate Disclosure and Financials (18.2%), Offering Fraud (15.5%) and Manipulation (15.2%).

One year after the start of the program -- "SEC Issues First Whistleblower Program Award - Washington, D.C., Aug. 21, 2012 - A whistleblower who helped the Securities and Exchange Commission stop a multi-million dollar fraud will receive nearly $50,000 — the first payout from a new SEC program to reward people who provide evidence of securities fraud."

The questuion I posed above really can not be answered.  How do you measure success?  If next year we find that 300 awards were granted (10% conversion), can we say the program is a success as we have identified dishonest situations, based on Tips..  Conversely, if we only identify three situations, can we say the program is a success as it deters the defrauding of investors?

What are your thoughts?

Answers

(Agent, JKS Solutions, Inc.) |

10% award is equivalent to the IRS bounty. Just now you can report financial fraud or offering fraud which there is a good bit of and make 10% on that.

See if accountants were truly entrepreneurial they would open fraud invesigations practices and perform the investigations themselves based on tips from the public and share in the 10% award with the people who blew the whistle.

That would be a privatisation of the entire process. Perhaps the 10% award in that case would actually be a cost savings to the government because they would not have to spend the money to perform the investigations.

I should get a Nobel Peace prize for that idea.

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