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Rewarding the New Age of Whistleblower claims



By using the basic capitalist tool of financial reward, Whistleblowers who provide information of a fraud to the Securities and Exchange Commission or the Commodity Futures Trading Commission can receive 10% to 30% of the recovery when there are sanctions of more than $1 million.

The free market provides the best protection from abuses of the free market, and the whistleblower provisions effectively acknowledge that The Dodd-Frank Act with its (Dodd-Frank Wall Street Reform and Consumer Protection Act,) 2,319-page financial reform bill (245 pages longer than the healthcare bill compared to just 66 pages of the Sarbanes-Oxley Act)) encourages whistleblowers to identify securities or commodities fraud by allowing them to share in the recoveries obtained from the information they provide.

Searching for financial fraud
The provisions are modeled on the False Claims Act, which allows whistleblowers who report fraud related to government procurement to share in any government recovery. The False Claims Act has delivered billions of dollars to the federal government and hundreds of millions to whistleblowers, a bargain considering how many additional regulators could have been employed without necessarily achieving nearly as much. Dodd-Frank is designed to ferret out financial fraud and crimes regardless of whether government procurements are involved. In a 2009 False Claims Act settlement between the Justice Department and Pfizer, whistleblowers altogether received more than $80 million. Had the recent case brought by the SEC against Goldman Sachs, which resulted in a $550 million settlement, been initiated by a whistleblower, that whistleblower would have collected between $55 million and $165 million.

Identify accounting fraud
Whistleblower lawsuits also may happen when market participants--hedge fund operators or commodities traders--learn of fraud in their markets; for example, they may identify accounting fraud when their own rigorous analyses raise questions about a company's representations. Likewise, commodities traders may identify market manipulations such as the cornering of a futures market. Employees of fraudulent companies may also start the process.

Some have expressed concern that whistleblower provisions may introduce a flood of unmeritorious claims. That concern is valid but exaggerated. Lawyers who will be paid only upon a successful outcome can be counted on to filter out claims that lack merit before they evolve into actual litigation, and the government itself will do so too. In short, therefore, the Dodd-Frank whistle blower provisions give the market an opportunity to do what it does best--operate freely through individuals.

Source: Forbes Magazine