In a recent Forbes.com article, James Kaplan, of Audit Integrity, tore
down the arguments voiced by critics (such as former SEC chairman Harvey
Pitt) of the SEC's revised whistleblower program. Pitt's concern,
as quoted in a November NY Times article, was that the SEC's new program
would undermine the internal compliance departments of various corporations.
As argued by Kaplan, Pitt's concern is invalid at best and intentionally
deceptive at worst.
The 2002 Sarbanes-Oxley Act, a legislative effort to reduce corporate
fraud that came on the heels of the Enron and WorldCom scandals, has done
little to combat malfeasance in the financial and corporate worlds, a
fact that comes as no surprise to Kaplan.
"Is it really likely, as Pitt suggests, that corporate compliance
departments will rat out their own executives? Should we continue to rely
on them to act as anti-fraud monitors and keep an eye on their own executives--a
task they have proven incapable of performing?" he wrote.
The statistics say no. In fact, according to Kaplan, over 90% of the SEC's
enforcement actions have come from whistleblower tips, the exact things
the SEC's revised program aims to increase - a goal that many see
as easily achievable as long as the program stays funded.
The new whistleblower program already has $475 million set aside to reward
eligible whistleblowers whose tips lead successful enforcement actions.
Compared to the meager $160,000 that was awarded by the SEC over the last
two decades under the old program, the new program is clearly intended
as a major and wide-reaching response to the continued increase in investment fraud.
As such, the provisions of the improved program are expected to lead to
regular and consistent enforcement actions by the SEC based on solid whistleblower
tips. In fact, many in the industry expect the number of tips reported
to the SEC to increase dramatically over the next few months. It is easy
to understand, then, why so many corporate managers and lobbyists are
arguing against the program's implementation.