$4.5 Million for individual reporting fraud

The Securities and Exchange Commission (SEC) has just revealed the first award under its new Whistleblower rules that encourage parallel SEC and internal reporting within 120 days.

The sum received by the whistleblower concerned was US$4.5M.

Getting rich for reporting company fraud has long been a possibility in the USA under Dodd Frank rules (2010), and the SEC has awarded $381 million to 62 individuals since issuing its first award in 2012. Money awards can range from 10% to 30% of the sums collected as long as they amount to over US$1M.

The USA is not the only country where substantial awards can be achieved by whistleblowers. They have been successfully introduced in Canada and South Korea. However, in Europe there has been a widespread, but unfounded, contention that such schemes do not work or lead to misreporting with malicious intent. This concern usually stems from fears that financial incentives will uncover widespread wrong doing that will seriously damage the bottom line and reputations of major companies.

One change in the pipeline is an EU Directive on whistleblowing. Only ten EU countries currently offer whistlblower protection (France, Hungary, Ireland, Italy, Lithuania, Malta, Netherlands, Slovakia, Sweden and UK) and therefore the measure will go a long way to providing a common framework for making disclosures. The EU parliament agreed to the measure at first reading last week and it is expected to by finally approved by the Council of Ministers this Autumn. But EU Member States will then be given two years to implement it.

“As the Directive is purely protective” points out Robin Chater, Secretary-General for the Federation of International Employers (FedEE) “it offers no facility for rewarding disclosure of wrongdoing. Europe will continue to be a place where fraud can be perpetrated and its perpetrators sleep happily in the knowledge that it profits no-one but their corporation that the wrongdoing is uncovered. Corporations too could face fines for financial offences undertaken by their staff and therefore will often have no incentive to self-report misdemeanours.”

DISCLAIMER: This document is for general guidance only. Its contents do not constitute legal advice and are not intended to be complete or exhaustive. Although we try to ensure the information is accurate and up-to-date, all users should seek legal advice before taking or refraining from taking any action and no liability is accepted for any loss which may arise from reliance on information contained in this document.