Now the lawyer who wrote the rules that gave Wall Street insiders a big financial incentive to report crimes to the SEC is suing the government for changing them.
After agonizing about the decision, the top financial adviser had finally gone to the Securities and Exchange Commission with proof of wrongdoing at his firm.
He’s blunt about why: the roughly $50 million he stood to make under the agency’s whistleblower program, his calculation based on what kind of settlement he thinks the government could extract. It would be enough to offset any lost earnings in the likely event that his former colleagues figured out he’d turned them in and blacklisted him, even at the salary level he’d attained after a long career in a lucrative business.
“I’m not giving up 10 years worth of income to be a good guy,” the adviser said. “I’ve got to weigh the risk against the reward. And the risk is huge.” (The adviser requested anonymity to avoid disrupting the case, and the SEC never releases the names of people who blow the whistle.)
But last fall, that risk analysis got turned on its head.
Since going live in 2012, the SEC’s whistleblower office has brought in eye-popping settlements from a wide range of financial bad actors, including big names like Merrill Lynch, which paid
$415 million in 2016 for trading with cash that was supposed to be in reserve accounts for its customers. By the end of fiscal year 2020
, investigations opened thanks to whistleblower tips had resulted in sanctions worth $2.7 billion, out of which $562 million had been paid to 106 individuals.
In a quiet vote on Sept. 23, the Republican-dominated SEC adopted amendments
that could allow it to lower payments to whistleblowers. Its argument is that awards should only be as large as necessary to prompt people to come forward, and excessively high payouts might be better spent on other priorities.
Advocates say that may dissuade whistleblowers, insulating the biggest Wall Street banks and investment firms, which are typically subject to the largest fines and whose wrongdoing is often the most difficult to spot without help from highly paid insiders.
The SEC’s shift may exacerbate the effects of the Trump administration’s blitz of deregulation of the financial services industry, advocates fear. With weaker incentives to report fraud, regulators may have fewer allies as they monitor markets for the kind of bad behavior that can follow such loosening of rules.
Now one of America’s top whistleblower attorneys is moving to stop the SEC. Jordan Thomas, who as a former SEC attorney helped write the rules that set up the whistleblower office in 2011, has just filed a lawsuit alleging that the amendments are illegal. The complaint
, which he provided to ProPublica exclusively in advance, charges that taking into account the dollar amount of an award contravenes the statute that established the program. Thomas also contends that it improperly sandbags people already in the SEC’s whistleblower pipeline. Continue Reading