Business

US incentives 'to boost financial whistleblowing'

Dollars
Image caption The potential payouts could mean whistleblowers need never work again

New rewards for whistleblowers at US financial firms are expected to bring a surge in tip-offs, a report says.

Lawyers told the Financial Times the prospect of such payouts offered a "tremendous incentive" for highlighting alleged wrongdoing.

People providing information that leads to the financial watchdog bringing a successful case are entitled to up to 30% of sanctions imposed above $1m.

Business groups warned of potential misuse of the system.

Experience

Rewards for whistleblowers are part of Wall Street reforms that became law last month.

The scheme is a "tremendous incentive" for people to blow the whistle, Columbia University law professor John Coffee told the FT.

There was unlikely to be a shortage of "entrepreneurial law firms" to represent them, he added.

The US already has a False Claim Act, that allows people to file actions against federal contractors who they accuse of committing claims fraud against the government.

Previously used primarily against defence firms, it is now largely focused on the health care industry.

Tim Coleman, a partner at law firm Freshfields Bruckhaus Deringer, told the FT his firm predicted "more cases based on the experience under the false claims act".

'Effective'

The US watchdog, the Securities and Exchange Commission (SEC), is expecting a sharp increase in tip-offs - both from senior employees and third parties.

"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," Stephen Cohen, an SEC official, told the Financial Times.

"We're expecting a tremendous response"

Mr Cohen insisted the SEC could cope with the expected influx of new allegations.

"We already have systems in place, which we're improving, for dealing with thousands of tips every year.

"If this can help us to bring cases more efficiently and quickly, it will make us a more effective regulator."

Groups representing financial companies have expressed concerns that the generosity of the potential rewards for whistleblowers could lead to speculative tip-offs - including from ex-employees - which would be disruptive for firms and waste the SEC's time.

"Our only concern is if this were to encourage malicious whistleblowing - people making stuff up to cause trouble," the Association for Financial Markets in Europe told the FT.

"The company will end up being cleared, but investigations still take up a great deal of time and resources."

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