On Wednesday, the SEC voted 3-2 to adopt the new whistle-blower program included in last year's Dodd-Frank financial reform law.
Under the new rules, tipsters who provide information that leads to $1 million or more in penalties will receive up to 30 percent of the money the SEC recovers through the enforcement action. (For more information about the program, click here.) That could mean a lot of money. As mentioned by The Associated Press, if a whistleblower had been responsible for the SEC's $550 million settlement with Goldman Sachs, the tipster could have received up to $165 million.
Critics of the program have been voicing opposition to its implementation for months, and it is clear that attitudes remain divided. The SEC's two Republican commissioners voted against the program, and others in the industry continue to speak out against it.
After the vote, the U.S. Chamber of Commerce said (as quoted by the AP):
"The SEC has chosen to put trial-lawyer profits ahead of effective compliance and corporate governance. This rule will make it harder and slower to detect and stop corporate fraud, by undermining (internal) compliance systems."
Most investor advocates and financial regulators, however, disagree. According to James Kaplan, of Audit Integrity, more than 90 percent of the SEC's enforcement actions come from tips by whistleblowers. The new program's increased protections and higher financial rewards should mean the SEC will receive substantially more tips, which means more actions will be filed in the fight to stop corporate fraud.
The new rules will go into effect in approximately two months. Tips received from July 2010 to now will also be eligible for an award under the new rules.