At the Securities and Exchange Commission, tips on financial misconduct and investment fraud have been pouring in at the rate of eight per day. According to the Chicago Tribune, as of mid-August the SEC's office on whistle-blowing had received in excess of 2,870 tips.
Why this sudden rash of tipsters? Are the big-time players working deep inside our financial institutions suddenly burdened with a conscience? I don’t think so. Two factors are fueling this rush to disclosure: fear of exposure and financial reward.
The list of individual players and big companies making the front page for the wrong reasons has been embarrassingly long: Bernie Madoff, Bear Stearns, AIG, Barclays. . . Frankly the heat is on. According to a Harris poll, 67 percent of the public distrusts Wall Street. I may be cynical, but I think a lot of insiders are telling all because they don’t want to be blamed for not telling what they know. Jordon Thomas, a lawyer who represents whistle-blowers has said, “[My clients] like their life, but they know something that they can’t pretend they don’t know [anymore].”
In 2010 Congress passed the Dodd-Frank Act, authorizing a program that rewards whistle-blowers who disclose high-quality, verifiable information. Under these new rules, the SEC created a program to encourage people to report and provide evidence of actual or potential securities fraud. Tipsters whose information proves crucial to a case could get 10 to 30 percent of the penalties over $1 million. The SEC's first payment under this program was $50,000 to an informant who alerted regulators to a major investment fraud.
This new brand of whistle-blowers dishing out dirt from deep inside corporate America are less interested in fairness of the functional stability of the marketplace than they are in getting a cut of the potential multi-million dollar penalties offered by the SEC. Sadly, their actions are motivated by Economics 101 — not Ethics 101.
Al Gini is a Professor of Business Ethics and Chairman of the Management Department in the Quinlan School of Business at Loyola University Chicago.
Previous post in The BEZ