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Whistleblower bounty must go hand-in-hand with reform – Letter to the Editor

Letter to the editor of the Financial Times from Phillips & Cohen partner Erika A. Kelton discussing the need for a whistleblower bounty.

Whistleblower bounty must go hand-in-hand with reform

Sir, While the inspector general of the Securities and Exchange Commission is right to propose a new bounty programme to encourage whistleblowers (July 2), such a programme would be pointless without a requirement that the SEC actually investigate reports of investor fraud and pursue the ones deemed worthwhile.

The SEC already receives plenty of whistleblower and investor complaints – more than 700,000 annually. The problem is that important information about significant cases of investor fraud – such as Bernard Madoff’s Ponzi scheme – gets buried in with crackpot complaints.

There’s no question the Department of Justice’s bounty programme created under the False Claims Act to stop fraud against the government has been successful, with recoveries from whistleblower cases totalling more than $14bn. Based on my experience handling whistleblower cases, it’s clear that the success is due not just to the rewards offered to whistleblowers but also because the act requires the Justice Department to decide within a specified time whether to intervene and prosecute a whistleblower complaint.

If Congress is serious about stopping future Madoffs, it should include an action-forcing mechanism in any SEC whistleblower legislation and use the False Claims Act as a model. Without such a mechanism, there will be no assurance that serious whistleblower allegations will get the attention they deserve.

Erika A. Kelton
July 6, 2009


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