Newspaper article Pittsburgh Post-Gazette (Pittsburgh, PA)

FEDERAL AGENCIES ENHANCE TIPSTER PROGRAMS 'IT HASN'T ... RESULTED IN A SLEW OF PEOPLE COMING FORWARD' Series: TELLING FOR DOLLARS

Newspaper article Pittsburgh Post-Gazette (Pittsburgh, PA)

FEDERAL AGENCIES ENHANCE TIPSTER PROGRAMS 'IT HASN'T ... RESULTED IN A SLEW OF PEOPLE COMING FORWARD' Series: TELLING FOR DOLLARS

Article excerpt

Burned by its failure to catch the Bernard Madoff Ponzi scheme, despite years of warnings from a tipster, the Securities and Exchange Commission couldn't say no when Congress ordered it to pay whistleblowers.

There's little love in official Washington for the Edward Snowden kind that takes secrets to the media. But people who turn in their bosses or companies to the government are viewed as heroes -- eligible for compensation -- in more and more corners of the federal bureaucracy.

"Let's face it, blowing whistles is a career limiting, if not a career-ending act," said Sean X. McKessy, chief of the SEC's Office of the Whistleblower. In the high-dollar world of securities, he said, only a significant financial incentive would counterbalance that.

"We now have rewarded six people who have enabled us to prevent an ongoing fraud or conduct from getting worse," he said. "I think that sends a message."

Skeptics are countering that if the modest number of payouts doesn't increase this year, faith in the program will wane.

"I have to tell you that the program has had small returns so far," said Patrick Burns, co-director of Taxpayers Against Fraud, a nonprofit group that backs whistleblowers. "The SEC is an apple tree. ... We think it will produce more apples in the future."

The Dodd-Frank financial reform law requires that when the SEC gets a tip that results in a payment by the company of $1 million or more, the whistleblower gets between 10 and 30 percent of the amount recovered. Awards should tend to the high side when the whistleblower tried to report the fraud within the company first.

The SEC's Office of the Whistleblower has so far paid $14.88 million to its six whistleblowers. That total, though, is dominated by one $14 million payout on a case the SEC declines to detail.

The U.S. Chamber of Commerce, which opposed putting a whistleblower provision into Dodd-Frank, worries that the $14 million award will prompt people to skip their companies' internal chains of compliance that it believes are better equipped to handle complaints quickly.

"Obviously, the money is a big incentive for people just to call [the SEC] with anything. The SEC is probably spending a lot of time sorting the wheat from the chaff," said Alice Joe, managing director of the Chamber's Center for Capital Markets Competitiveness. "If a whistleblower went straight to the SEC, by the time the SEC addresses it, it could be a number of months," before the company learns of the problem and can take internal measures.

The six awards paid by the SEC stemmed from 6,574 tips to Mr. McKessy's office. They represent a sliver of the 431 cases in which the SEC imposed sanctions of $1 million since 2011.

In one case before the 2nd U.S. Circuit Court of Appeals, the SEC is accused of looking for reasons to deny an award. …

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