Wall Street whistle-blowing rewards 'to attract tremendous response'

9 August 2010

New incentives for people working on Wall Street to let regulators know about questionable behaviour from financial institutions will lead to a greater number of allegations being made against such firms, it has been predicted.

As part of the sweeping set of reforms included in the recently-passed Dodd-Frank Act, informants may be able to net multi-million dollar payouts for unmasking wrongdoings.

The Securities and Exchange Commission (SEC) hopes that the higher rewards will lead to an increased number of tip-offs from third parties, as well as from senior employees at Wall Street firms.

Stephen Cohen, an official at the SEC, told the Financial Times: "The scale of the awards reflects the high quality of whistleblower we hope to get – people within a company, broker or other regulated firm that we might not have heard from before.

"We're expecting a tremendous response."

But there are concerns that the generous rewards for whistle-blowing will encourage unhappy employees to make false claims.

A spokesman for the Association for Financial Markets in Europe said such claims could take up "a great deal of time and resources" - meaning the provision will have to be carefully monitored to ensure it is being implemented in a correct and fair manner.

But Mr Cohen said the SEC will be able to cope with the expected influx of new allegations and already has systems in place to deal with thousands of tip-offs each year.

He added that the organization may actually be able to become a more effective regulator as it strives to bring cases more efficiently and quickly in the wake of the new legislation.

Last month, Goldman Sachs agreed to pay the SEC $550 million to settle claims it had invented a package of subprime mortgage securities which was designed to fail.

The bank did not admit guilt to the SEC's fraud allegations when paying the fine.

By Asim Shah

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