NEW YORK (MainStreet) — The Securities and Exchange Commission announced Wednesday a new whistleblower program that will effectively pay tipsters should the information they give to the SEC lead to an enforcement action resulting in more than $1 million in penalties.
The SEC said it would pay 10% to 30% of that money to the person or persons whose tips help bring offenders to justice.
The program, which was mandated as part of last year’s Dodd-Frank financial reform bill, will go into effect in about 60 days. Whistleblowers who provided information starting in July 2010, when the mandate was issued, will also be eligible to receive awards.
The changes were contested by several big corporations who felt that the added incentives would discourage employees from addressing wrongdoing internally. While this may or may not prove to be true, the bigger payday is a marked increase over the SEC’s previous program, which only allowed insider-trading tipsters to collect 10% of the awarded penalties.
According to the SEC’s website, court orders in SEC judicial and administrative proceedings required violators to pay out $1.03 billion? in penalties from the 618 judgments on whistleblower cases in 2010.
By that math, is the average case was settles for $1.71 million in penalties, the average payout under the new rules would be from about $171,000 to $513,000. That number could be much higher, of course. If you had blown the whistle on the U.S. Pension Trust Corp. and U.S. College Trust Corp – two Miami-based companies charged with fraudulently siphoning investor money through exorbitant, undisclosed commissions and fees in the sale of mutual funds last October - you could have netted $5 million to $15 million of the $50 million penalty the two companies were ultimately ordered to pay the SEC.
For full details, check out TheStreet’s in-depth look at how the new program works.