Whistleblowing: Guilt or Greed?
According to Sean McKessy director of the Securities and Exchange Commission office on whistle-blowing recently reported that tips on financial misconduct and investment fraud have been pouring in at the rate of eight per day. According to a report in the Chicago Tribune, by mid-August McKessy’s office has received in excess of 2,870 tips. So why this sudden rush of informants and tipsters? Why this urge to be ethical? Why step out of the shadows now? Why this need to stop turning a blind-eye to misconduct they’ve long suspected, and, in some cases, directly known about? Are the big time players working deep inside our financial institutions suddenly burdened with a conscience? No, I don’t think so! I believe there are two factors that are directly fueling this rush to truth telling and the disclosure of dastardly financial deeds: 1) Fear of Exposure; 2) Financial Reward.
Fear of Exposure: Since 1978 the list of individual players and the names of big companies making the front page for the wrong reasons has been embarrassingly long: Robert Diamond, Bernie Madoff, Bear Stearns, AIG, Peregrine Financial, MT Global, JP Morgan Chase, Barclays. Frankly the heat is on. According to a Harris poll, 67 percent of the public distrusts Wall Street. So, I cynically think that a lot of insiders are telling all because they don’t want to be blamed and punished for not telling what they know. According to Jordon Thomas, a lawyer who specializes in representing whistle-blowers: “[my clients] like their life, but they know something that they can’t pretend they don’t know [anymore].”
Financial Reward: In 2010 the Dodd-Frank Act was passed by Congress and it authorizes a whistle-blowers program that rewards people who disclose high-quality, verifiable information. Under these new rules, the SEC created a program to encourage people to report and provide evidence of actual or potential securities fraud. Tipsters whose information proves crucial to a case could get 10 to 30 percent of the penalties over $1 million. The SEC first payment under this program was $50,000 to an informant who alerted regulators to a major investment fraud.
As far as I’m concerned these new whistle-blowers who are dishing out dirt from deep inside corporate America to the eager ears of the SEC are less interested in the fairness and the functional stability of the marketplace, are more interested in getting a cut of the potential multi-million dollar penalties offered by the SEC. Sadly, their actions are motivated by Economics 101, and not Ethics