A massive amount of $114 million was awarded to a whistle-blower by SEC for tipping off the government to misconduct and offered assistance in an enquiry as per the agency.
This amount is over double the highest amount given to a whistle-blower for a case, which record was set just four months prior.
“I hope this record-breaking award encourages others with information about possible securities laws violations to step forward. There is a real hardship, both personal and professional, that people endure. The money, I hope helps,” said Jane Norberg, head of the SEC’s whistle-blower office.
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The whistle-blower has aided the SEC in revealing suspicious behaviours of Ponzi schemes, insider trading, market manipulation and bribery among many others.
“These whistle-blower tips have a huge impact on our enforcement program. It’s a gamechanger,” Norberg asserted.
The identities of the whistle-blowers are protected and nobody knows who was the person and what did they help in uncovering.
“This is the type of award that changes cultures,” said Kohn, an attorney at Kohn, Kohn & Colapinto. “It incentivizes people to come forward and it also deters wrongdoing. It makes it very real for people who are thinking about engaging in fraud. They realize there is a strong likelihood they’ll be turned in.”
The monetary incentive is a big help in encouraging people to report shady behaviours or activities. Otherwise, without any encouragement or motivation, employers and investors tend to remain quiet. The incentive can range between 10% to 30% of the fines levied in SEC actions ensued whistle-blower prompts.
The clues and tip-offs from the informers are then handed over to the investigators to follow up. If the clues amount to something concrete, and help the SEC in taking an action, the whistle-blower will be eligible for a portion of the penalties.
Rules related to whistle-blowers
Last month, the SEC backed down on a suggested rule that could have restricted the financial incentive for people who provided the tips. Owing to opposition by the advocates, the proposal was withdrawn collectively. A new rule was implemented by the SEC which restricts a person who is known to exploit the process by providing wrong tips.
Federal and state taxes are still applicable on the awards earned by the informers. They can go up to 50% for the largest amounts. The lawyers representing them will have to pay their taxes on the fees as well.