The financial regulation bill passed by the Senate Thursday night included a provision that expands a bounty program to compensate “whistleblowers,” or those who report fraudulent or corrupt activity by their employer. Currently, the program run by the Securities and Exchange Commission only pays out to informants in insider-trading cases. It’s been used a total of five times in its 20-year existence, according to Securities and Exchange Commission Inspector General David Kotz, who said in a report in April that it hadn’t been effectively used by the agency since it was created, nor were possible informants encouraged to apply for it. The program’s expansion would cover all securities violations, including the Foreign Corrupt Practices Act, a law that bans the bribing of foreign officials by U.S. companies, U.S. citizens and, under certain circumstances, by foreign companies and foreign nationals. Whistleblowers have been paid in other cases, such as Douglas Keeth, who as chief financial officer of United Technologies Corp. (UTX) exposed fraudulent billing practices for helicopters bought by the Defense Department in the 1980s and received a $22.5 million bounty in 1994, but his case was unrelated to violations of securities law. The financial regulation bill spells out how the expansion would work. A new fund, known as the Securities and Exchange Commission Investor Protection Fund, would pay out between a minimum 10% and a maximum 30% of the recovered money from a violation of more than $1 million. A similar version of the program’s expansion passed the House in December when it passed its financial regulation bill, but one main difference is that bill contains no minimum payout. The two bills will be merged in a conference committee, and House and Senate leaders have said a bill will reach President Barack Obama’s desk by the July Fourth recess.
Whistleblower bounty laws presently exist to halt government fraud in the areas of tax evasion, military contracts, medical services and Medicare payments and many other matters relating to government funding. If you are a potential whistleblower, contact competent legal counsel.