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USA: SEC pays award to whistleblower.

Publication: 
Nigel Morris-Co...
chiefofficersnet

The USA's Securities and Exchange Commission has announced its 100th award under its whistleblower scheme. It's the 33rd this year.

The fascinating thing about the award is not the amount - at USD1.8 million it's far from the largest made - nor even that it arose from a report by someone outside the company. It's not even, that the SEC has, wait for this, an "Office of the Whistleblower." It's that the identity of both the company and the recipient have not been revealed by the SEC. In these days of illegal extraction of data from high profile US government organisations, one has to wonder how long that anonymity will last.

The SEC says this "As set forth in the Dodd-Frank Act, the SEC protects the confidentiality of whistleblowers and does not disclose information that could reveal a whistleblower’s identity."

The relatively low amount of the award might be explained by the nature of the scheme. While the USA's Inland Revenue Service whistleblower scheme rewards those providing actionable intelligence with a share of the tax recovered, the SEC's scheme is funded "out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators. No money has been taken or withheld from harmed investors to pay whistleblower awards."

That's not entirely accurate: there is a formula for how the award is calculated - albeit one that is so broad that it's not possible to predict what an award might be: provided the intelligence leads to a successful enforcement action in which "monetary sanctions" i.e. civil penalties or fines, as the case may be - exceed USD1 million. The award will be between 10 and 30 percent of the amount collected.

So, because penalties of whichever kind are paid by the company, which diminishes its profits and therefore the dividends it pays (and has an effect on its balance sheet and, perhaps, the Profit and Loss account, there is an effect on the shareholders. What the SEC really means is that the whistleblower scheme does not create an additional burden on shareholders beyond the penalty the company pays.

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