SEC and Bounty Hunters

Riches for ratting promises to become a new industry. Banking "bounty hunters" will spring forth and help find people who have information, tell authorities and then split the reward.
This post was published on the now-closed HuffPost Contributor platform. Contributors control their own work and posted freely to our site. If you need to flag this entry as abusive, send us an email.

Hell hath no fury like a woman scorned?

The ex-wife of a hedge fund guy in the U.S. just got $1 million from the Securities and Exchange Commission for handing over information about his insider trading.

This is a record payment to an informant, but the first of many. The new rigorous financial reforms that begin next month in the U.S. contain a provision for huge payouts to whistleblowers.

It's a street-smart, but controversial, law enforcement tool which has been used by police and prosecutors in criminal investigations forever. But payouts have been relatively smaller than what's budgeted for in this new basket of reforms.

The SEC will be armed with a generous pay scale to tout in order to attract informants. A "snitch" fund. It will be based on a sliding scale starting with a minimum payout of $100,000 if the SEC reaches a settlement worth more than $1 million. This amounts to a 10% commission and will decline as the settlements rise.

For instance, the hedgie's ex-wife got her million dollars because her information led to a $28-million settlement.

The idea is a good one but not a new one. The first white collar crime reward for whistleblowers was instituted during the Civil War when government procurement contracts were riddled with fraud or were illegally granted as a result of bribes or kickbacks.

Given the especially bad behavior throughout the world's financial system, regulators in all countries should look at adopting the same methods. Even in Canada the Good.

There's little doubt that the financial shenanigans in the past will guarantee that the SEC will be inundated with disaffected, discharged or crank employees, brokers, accountants and others, newly motivated to reveal wrongdoing.

There will be a "snitch" line and it will be working overtime on Wall Street. And the snitching won't be restricted to American misdeeds due to the enmeshment of the world's banks and markets globally. So a tipoff south of the border may lead to trouble for people in other countries where the information will be shared.

The SEC is gearing up for this and will have to create a division of people who must verify and evaluate the quality of information sure to pour in.

Some Congressional members attacked this technique as immoral, but others argued that the greater immorality would be to do nothing to entice high-level information.

The 10% commission was established, and is unusually high, in order to encourage highly paid executives and professionals to come forward. Targets of interest are derivatives and false filings by listed corporations.

Riches for ratting promises to become a new industry. Banking "bounty hunters" will spring forth and help find people who have information, tell authorities and then split the reward.
From now on crime pays for the good guys as well as the baddies.

Diane Francis blogs on The Financial Post.

Popular in the Community

Close

What's Hot