A record-breaking award has been made to an informant who provided company information leading to fraud enforcement action by the Washington-based Securities and Exchange Commission (SEC).
The award is the SEC’s 14th to date, and its largest at $30m, since commencing its rewards program in 2011: more than doubling its previously-largest award paid out exactly one year ago at $14m.
That case involved a tip about a Chicago-based scheme that sought to defraud foreign investors seeking residency in the US.
Details of the latest enforcement action and the identity of the source that lead to the action have not been made public, though the whistle-blower was revealed as being a foreign resident, demonstrating the programme’s international remit.
The source was described by the SEC as having provided important business information that enabled corporate investigators to uncover a ‘difficult to detect’ and ongoing fraud.
Lawyers representing the tipster released a statement saying investors in the company were being cheated out of millions of dollars. ‘Deception had become accepted business practice,’ it added.
The related SEC order said its pay out would have been higher had the whistle-blower acted sooner instead of delaying bringing the misconduct to light after first discovering it.
It said they hoped the award would send ‘a strong message about our commitment to whistle-blowers and the value they bring to law enforcement’.
The case also involved the Justice Department’s Fraud Section and the Federal Bureau of Investigation.
The Exchange Commission’s initiative pays tipsters who report corporate fraud or other misconduct if their information leads to enforcement action resulting in a million dollars or more in fines.
Successful whistle-blowers are then able to claim up to 30 per cent of the money recovered by the SEC, offering strong financial incentives to report wrongdoing.
The Commission’s reward initiative was borne out of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, which was enacted to prevent the excessive risk-taking that created the financial crisis.
It is now able to launch business investigations into foreign cross-border businesses operating in the US as well as domestic US companies, wherever it has reason to believe regulatory business compliance has not been adhered to, or where wrongdoing is taking place, before awarding payment to those who assist it.
Prior to this, the SEC offered financial rewards only to those assisting with insider-trading cases.