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Securities Fraud Whistle-Blowers Are Being Rewarded

Meyer Wilson

Federal securities regulators have been relying on an increasing number of confidential informants, also called whistle-blowers, to find and prosecute wrongdoing in the financial sector following the financial crisis less than 10 years ago. Recently, both Indiana and Utah have implemented similar programs that incentivize whistle-blowers to step forward and alert officials to securities law violations.

One informant in Indiana was awarded $95,000 for providing officials with information on JPMorgan Chase’s failure to disclose information to clients regarding conflicts of interest with how their money was invested by the bank, which led to a $950,000 settlement paid to the state. Indiana’s program was started in 2012, and can award whistle-blowers up to 10 percent of the monetary sanctions the state receives.

Utah’s program was started in May of 2011, and can reward informants up to 30 percent of the settlement received if the sanctions are $50,000 or greater. According to the director of the Utah Division of Securities Keith M. Woodwell, their state’s initiative has led to 15 successful prosecutions since its creation. He spoke to the New York Times about the benefits of the program:

“The problem we routinely face is we get lots of complaints, but well after the crime has been committed. If we can get people in the door sooner, we have a much better chance of freezing the assets and getting victims’ money back.”

Utah awarded their first whistleblower $20,000 in 2014 after officials were informed of questionable transactions, leading to the recovery of around $150,000. The North American Securities Administrators Association (NASAA) recently discussed expanding these state-level programs, so Indiana and Utah may be joined by the rest of the nation in rewarding whistle-blowers in the near future.

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