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Rule encouraging whistleblowers to come forward

A recent rule that came about as part of the Dodd-Frank legislation means employees now have more incentive to become whistleblowers.

David Brancaccio: Whistleblowers at American corporations are sending thousands more tips to the Securities and Exchange Commission to take advantage of a program that can make turning in your employer more lucrative than winning the lottery.

Joining me live to talk about it is Marketplace's Gregory Warner. Gregory, remind us -- what is this whistleblower rule is and how does it work?

Gregory Warner: This was passed in April as part of the Dodd-Frank Wall Street reform bill.  And the theory was that if whistleblowers were more motivated to come forward then the government would know earlier about financial fraud or market manipulation, and maybe the government could have even avoided the financial meltdown.

So the whistleblower rule offers anyone who brings a credible tip to the SEC the chance at a cash reward of up to 30 percent of whatever the SEC gets from the company in court. So, on a $30 million fine, the whistleblower picks up to $9 million -- that’s an incentive to report accounting fraud.

Brancaccio: Yeah, it's an incentive. Now, one of the big concerns when the bill was passed was the SEC does not have the staff to handle all these tips.

Warner: You know, that is still a real concern, although a very interesting thing has happened as a result of this reward program. The SEC has gotten some new help from lawyers. You wouldn’t call it "ambulance chasing," but lawyers are definitely seeing a reward in helping whistleblowers to present their evidence in the most useful way to the SEC.

Earlier this morning I had a long conversation with Reuben Guttman. He's head of the whistleblower practice at Grant and Eisenhofer. He says lawyers involvement makes the difference between the SEC getting, say, a hastily email from a corporate insider and a packet of court-ready documents.

Reuben Guttman: Because the theory is if the agency does use the information than the employee will be compensated.

Warner: And so will his lawyer.

Guttman: And so will his lawyer.

I talked to another lawyer in New York. He said we should see the first successful case, and the first payout, in a few months.

Brancaccio: All right, Marketplace's Gregory Warner, thank you.

Warner: Thank you.

About the author

Gregory Warner is a senior reporter covering the economics and business of healthcare for the entire Marketplace portfolio.

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