SEC issues more than $17M award to a whistleblower | Hacker News Reader

SEC issues more than $17M award to a whistleblower

sec.gov

213 pointschmaynard95 comments

> The SEC has awarded approximately $1.3 billion to 278 individuals since issuing its first award in 2012.

That's either alot of corruption that's been caught due to whistleblower rewards or an indication of the amount of corruption in the US if you are more cynical.

Whsitleblower's are eligible for 10 to 30% of the money collected from fines, so the SEC is also making alot of money from this as well.

Here's the list they maintain if you want to look:

https://www.sec.gov/whistleblower/pressreleases

> That's either alot of corruption that's been caught due to whistleblower rewards or an indication of the amount of corruption in the US if you are more cynical.

Given a stock market of around $100T (and the SEC covers more than stocks) it would argue for a rather small amount of corruption, were it the only signal.

In fact I believe the corruption at this level is quite small. Really, why bother when you can do it wholesale (e.g. telecoms simply capturing the regulators)?

> Whsitleblower's are eligible for 10 to 30% of the money collected from fines, so the SEC is also making alot of money from this as well.

These fines go to the treasury; it's not like they fund operations from it.

BTW civil forfeiture, if you even believe in it at all, should go to the state or federal general funds. The current system is simply legalized theft.

> In fact I believe the corruption at this level is quite small. Really, why bother when you can do it wholesale (e.g. telecoms simply capturing the regulators)

That is still corruption. Sufficiently provable and easy to convict corruption might be small. Quid pro quo corruption where nothing is in writing is huge.

There is a very interesting podcast episode on "Freakonomics" where they interview a researcher who posits that there are forms of corruption that speed economic growth at the cost of fairness and other forms which do not speed economic growth. https://freakonomics.com/podcast/season-11-episode-12/

Sure it is, but my point is you’re not getting any information from signal (the number of SEC whistleblowers) when the real corruption is elsewhere.

I have a feeling that a system with no corruption would be far less efficient and productive than one with some corruption

A system can be more effecient and more productive and still be worse for the common person in it. Probably a lot of people on hns lives would be better of if they could reliably grease the palms of people around them with some pocket change, but the average person?

That might be true according to some of the economic measures we’ve used in the past. But why should maximum efficiency and productivity even be the goal if it does damage? How efficient and productive is enough? If things could be efficient enough to support society without corruption, maybe we should prioritize safety over corruption even if it is less efficient?

This idea that a little badness is more efficient than no badness has played out multiple times in the past and one thing we’ve learned repeatedly is that humans are pretty bad at understanding and accounting for the full and true economic costs of a little badness, especially the humans that are making money. More often than not the damage done by badness is externalized and the costs ignored by the people who are profiting from the environment that tolerates the badness.

There are plenty of examples of this from the environment to product safety standards to the stock market. It was argued (fiercely) that the costs of seatbelts in cars was too high a price to pay for something that wasn’t helping every driver - most people, after all, don’t crash. This flawed thinking completely failed to capture the economic costs of car accidents, and today very few people even in the auto industry would disagree or even think of arguing against seatbelts.

We still don’t grasp the economic costs of pollution. We’re just starting to see the economic damage that allowing a little badness has had over the last century, and it’s already many orders of magnitude higher than most people thought several decades ago.

Similary, we’ve not really tallied the economic costs of poor people who’ve been pushed into bankruptcy by financial corruption. The growing inequality driven in part by lack of financial regulation is almost certainly fueling our political unrest, which we of course haven’t measured economically, and might not end well.

> BTW civil forfeiture, if you even believe in it at all, should go to the state or federal general funds. The current system is simply legalized theft.

It’d still be basically legalized theft even if it went to state/federal treasury.

There should be no such thing as a civil asset fortfeiture.

> There should be no such thing as a civil asset fortfeiture.

Well yes, I agree, I;m just pointing out the perverse incentive in how it is done.

The US is huge. 278 whistleblowers from 2012 to present is not bad at all.

How do you know in which direction it's not bad? As in, zero is obviously (probably) bad; a million is obviously (differently) bad.

278 represents the subset of crimes which

1. Had the whistle blown

2. Were investigated

3. Had enough evidence found during the investigation

4. Were fined successfully

5. Were announced via the SEC whistleblower program

Nobody knows the dropoff at every stage but it's certainly non-zero and so we can't judge the level of crime based on the number we know coming out at stage 5.

I don't think it's overly cynical to assume that 278 is a small percentage of the actual count of financial crimes in the US since 2012.

> we can't judge the level of crime based on the number we know coming out at stage 5.

We'll never know the exact details, but we can still piece together a statistical model of the world from the evidence we do have:

We can compare it to similar systems, for example. Murderers have to go through similar steps, so one might reasonably conclude that high-value financial crimes are less common than murder. If there are other countries with similar programs, we could also compare our number to theirs.

The minimum threshold to be eligible for a whistleblower reward is 1 million in sanctions. So, I think it’s at best an estimate of extreme financial crimes rather than just high.

I don't think a comparison with murder rates is valid. The "whistle" is much more likely to be blown for a murder, as there is a corpse or a missing person. Additionally, those committing financial crimes are mostly people with some combination of wealth and clout, better allowing them to fight the accusation and investigation, and there is the revolving door effect between the regulators and those they are supposed to regulate.

Plus, why would that comparison be useful? Everyone is capable of murder, not everyone is even in a position where they could attempt to commit the types of crimes that get announced via the whistleblower program. So if we were to compare, it would have to be some kind of per capita comparison, where the population for financial crimes is members of the financial industry. In which case the numbers start to look more damning.

Maybe the IRS should adopt a similar program

They do:

https://www.irs.gov/compliance/whistleblower-office

Some version of this exists across the entire US government - it's called a qui tam. However, qui tams are more limited to cases where the government has been defrauded (as opposed to Dodd Frank which covers financial violations that don't directly effect the US government).

For corruption within the government, you can report it to an inspector general (there is a different inspector general for each government agency), although there is not typically a financial reward associated with such a report.

Or NSA. They've got a big problem of not appreciating whistleblowers.

I don't know how the 1.3bn breaks down but please keep in mind the trend after the financial crisis is to issue fines that are disproportional with the size of the offense, as a punitive way. So it's not clear the 1.3bn has anything to do with the size of the underlying frauds.

That's a minuscule amount spread over 10 years for the huge markets watched by SEC. SEC probably should have done more to encourage more whistleblowers coming forward.

The larger issue is that the SEC is so woefully staffed that they can do as many investigations on tips as they come in.

SEC should use some of award damage to hire more people.

Probably why there's a press release with such comedically obscure wording...

There's a good Darknet Diaries episode about a social engineer who makes money from these SEC bounties: https://darknetdiaries.com/episode/80/

From my understanding, the SEC does not share award recipients' identities. That said, every time I see news of an award I wonder if it's gone to an insider or short seller.

The insiders are sort of obvious. But the short sellers... From what I understand, the game goes like this: sniff for signs of fraud in publicly traded companies (I forget who, but one famous short seller jokes that he looks for CEOs with hairpieces). Find evidence of fraud. Often this requires forensic accountants analyzing publicly available financial data. Submit evidence of fraud to the SEC. AND short the stock, go public with the evidence of fraud while disclosing your short position. If you're right, you can hit two paydays: the SEC whistleblower award AND the proceeds from the short sale.

I have zero experience with any of this. I am just recalling (as well as I can) a rabbit-hole I went down over a year ago.

Would be pretty dumb to actually open a short position. Put options would have far less downside, and a lot more upside.

You may need to be careful, as it's possible communicating with the SEC might cause you to be privy to material non-public information.

For example if you know there's a SEC investigation into the company because you're cooperating with their questions, that might bar you from certain market transactions.

Medicaid fraud costs the government about $30 billion a year. They also have a whistleblower program. If you google the topic, all the hits are law firms that will assist you for their cut of your cut.

A couple years back, I was considering entering this market with some tech solutions. There is certainly a lot of money on the table.

The issue with this is that the data is not real-time and Unaggregate claims data is very expensive.

I meant specialized IT tools to support the law firms that do this work.

https://old.reddit.com/r/Superstonk/search?q=%22SEC+whistleb...

Superstonk subreddit has many posts discussing about SEC whistleblower awards.

For example https://old.reddit.com/r/Superstonk/comments/ngbnmt/sec_awar...

"SEC Awards More Than $28 Million to Whistleblower Who Aided SEC and Other Agency Actions"

And over a year ago https://old.reddit.com/r/Superstonk/comments/nf3n64/474_of_t...

"47.4% of the Amount of all SEC Whistleblower Awards Ever Given Have Been Awarded in the Last 12 Months (Out of 105 Months of Program Activity)"

and the last post linked above represents that more persons are realizing and fearlessly speaking up.

In my own post https://old.reddit.com/r/infinitypool/comments/v5tgkj/yalol_... I referenced history things I became aware of since 1999

but also in https://old.reddit.com/r/infinitypool/comments/v5wjy1/yalov_... related concerns since before I was born, back in 1978. Not exactly related to whistleblowing, but practically connectable dots to due diligencely investigative journalistly potentially map out understanding the complexity of things that relate to noticeable increase in SEC whistleblower reportings.

Why would you link to discussions in subs filled with financially illiterate cultists? Why would that be interesting for anyone sane?

As bad as those subreddits are, they did have a point that people were taking positions in undetectable ways, as Bill Huang so helpfully pointed out.

Perhaps some of their other points may bear fruit.

I love the smart use of incentives this story highlights. But it doesn't go far enough: IRS and SEC agents should be allowed to audit any company with revenue over $5 million per annum - if the audit results in a fine of at least $500,000 then the agent gets a $100,000 bonus. Conversely if the audit doesn't result in a large fine, the agent has his or her bonus pool reduced by $10,000. This would provide a great incentive to weed out people who cheat the system.

I know it's protected information, but I am curious which types of fraud these amounts are awarded for. There seems to be lot of unpunished public examples of securities fraud (MLMs, cryptocurrencies, legislators dumping or buying stocks at convenient times, etc).

Just look at the headlines https://www.sec.gov/news/pressreleases These are just from the past three months:

Equitable Financial To Pay $50 Million Penalty To Settle SEC Charges...

UBS to Pay $25 Million to Settle SEC Fraud Charges...

Ernst & Young to Pay $100 Million Penalty for Employees Cheating on CPA Ethics Exams...

SEC Halts Alleged Ongoing $39 Million Fraud...

Medley Management and Former Co-CEOs to Pay $10 Million Penalty...

SEC Obtains TRO and Asset Freeze against Alleged Perpetrators of nearly $450 Million Ponzi Scheme

All of those are eligible for bounties

Be a bounty hunter and find out

Anonymity requires you paying a lawyer to do the filings

Interesting there is zero information what the award is for precisely, is that typical? It's described as "covered" and "related" actions.

From the post:

> "As set forth in the Dodd-Frank Act, the SEC protects the confidentiality of whistleblowers and does not disclose any information that could reveal a whistleblower’s identity."

Fair enough, but it leaves little to discuss but the amount awarded.

The information is withheld because they protect the anonymity of the whistleblower. The point of the article is to remind people that financial regulators take care of their informants, both financially and in terms of privacy.

Would disclosing which case it is harm their anonymity? Could you figure it out just hunting for recent enforcement actions in the right ballpark?

Edit: Looks like guga42k did exactly that in a different comment.

What are the tax implications on rewards like this? I recall there being different tax rates for lotteries vs normal wage+salary incomes

Looks like maybe 1099-MISC (ordinary income): https://www.irs.gov/irm/part25/irm_25-002-002

How do we know this was actually issued?

How do know this is new information? What is it related to?

They only do these press releases when they issue rewards. They don't include details to protect the whistleblower's identity.

> As set forth in the Dodd-Frank Act, the SEC protects the confidentiality of whistleblowers and does not disclose any information that could reveal a whistleblower’s identity.

This would seem to preclude any way of independently verifying their claims.

Realistically, to prove that there existed a whistleblower and this is not just marketing by the SEC, you would need incredible amounts of evidence, and even then you'd have no way of knowing whether the evidence is fabricated. At some level I think you end up just having to trust that the SEC isn't lying about paying whistleblowers.

These days even if they said who the whistleblower was people might suppose they were a "crisis actor."

Because not all of us are conspiracists?

I wish we had whistleblower rewards programs in Canada

Find a US based ETF with the asset and use the SEC :)

(Matt Levine wrote many times about how securities laws can become somewhat global somewhat arbitrarily)

It's often joked that the US government considers their jurisdiction world-wide. If the company does business in the US, there's a good chance the these programs might apply.

I just whistle blew on Tether. Tether is likely to crash. I can't wait to get rich from the SEC award

Not sure how to feel about that, this is a lot of money... The cobra effect comes to mind[0]. Not to mention that this is all done behind closed doors.

[0] https://en.wikipedia.org/wiki/Perverse_incentive#The_origina...

My understanding is that doing the things that gets you rewarded for whistle-blowing is flat out illegal. You will get into a world of trouble if you go for the cobra effect. In that way, there's both a carrot and a stick right?

What I had in mind was something more innocent like: mid-level employee engages in illegal activity (e.g. misrepresents some critical data in a report, engages in anticompetitive behavior, etc.), blows the whistle on company and puts blame on management. Whistleblower is granted immunity, company is fined large amount and employee collects a large payout.

I'm not saying this actually happened but it seems that large rewards may create such incentives. I might also be way off here, but it's really hard to know given the lack of information surrounding the rewards.

You cannot receive an award for activities for which you have decision-making authority.

"Whistleblower" in a legal sense has to mean that someone _above_ you asked you do to the illegal activity.

That's what I meant by "blaming management", e.g. claiming you were just following orders from above.

Your boss/company is responsible for your actions , if they have not put enough controls that is their problem.

For example there is personal phone/messaging app use in finance industry resulting in fines that is doing the news rounds now.

if you are communicating finance industry information outside the work devices provided and your company is not put enough controls and disciplined staff etc , they are liable for it .

> Your boss/company is responsible for your actions , if they have not put enough controls that is their problem.

I won’t argue they’re not accountable, but are you not yourself also responsible? If you knowingly commit fraud, “my boss didn’t stop me” is an unconvincing defense.

OK sure: If you are sophisticated enough to completely fool the SEC investigators without leaving a paper trail, email, or text message anywhere that points back to you. If you are amoral enough to steal money this way. And smart enough to pull it off while dumb enough to do something so risky. Then yes in theory you might be able to do what you propose.

Perhaps you highlight a good point though: make sure to CYA if someone is pressuring you to do something borderline. Make sure there is an email or text message trail where you highlight your concern about the legality of the operation, ask if we should consult a lawyer, etc. If someone above you only speaks in person and insists that you are the originator of all documents/proposals that may be a sign they're trying to make it look like it was your idea.

Even then, go to the SEC right away. They will provide legal advice. Sometimes you should quit, sometimes gather evidence.

You can try, just like how you can try to steal your own car for the insurance money, but you'll be in a lot of shit when it doesn't work out.

Without a paper trail, without coworkers collaborating your story, the investigations might not have the outcome you desire. Also, if the firm is well run, internal audits can catch you, and then you'll be in a lot of trouble.

You can only do this if when you first realize you are being asked to do something illegal you turn them in. You are often then askes to collect evidence for a few months. Anything elses risks them deciding you knew and wanted to benefit from crime and so getting charged, particularly if there is another whistle blower who gets there before you.

If you were involved with causing a fraudulent decision in any way, the company is going to use their mountains of evidence (e-mails, records, etc.) to prove it.

You can’t whistleblow on yourself and collect a reward. There isn’t really a scenario where someone can manipulate their company into doing large-scale fraud and not leave a trail behind that implicates themselves in the process.

The obvious solution is to award a percentage of the fine. They give between 10 and 30% of the money collected [1]

[1] https://www.sec.gov/news/press-release/2022-40

That's what they do: https://www.sec.gov/spotlight/dodd-frank/whistleblower.shtml

I can't tell if you're joking or if you actually believe someone might go out of their way to set up a successful but shady business, just so they can blow the whistle (on themselves?) in order to collect the whistle-blowing reward?

See my reply here: https://news.ycombinator.com/item?id=32157456

Are people going to start creating fraud just to expose themselves and get 10-30% of the take?

No, the frauds are regularly fined less money than they made and they never seem to pursue criminal charges either.

So we can't put a corporation in prison even though it's a person, and it's a notoriously difficult process to get CEOs and upper management indicted, so we fine them because it just gets things over with. What if we took "corporations are people" a bit further though. What if we "imprisoned" the corporation by not permitting it to do whatever line of work it was doing during the fraudulent phase for a period of years?

Given most members of the public assume that everyone in the financial sector is party to billion if not trillion dollar frauds, it is important to realise that if you blow the whistle - you get a chunky cut of the settlement.

So either the system is not quite as riddled with fraud as most believe or many people making 500k a year are passing up >$100mil to hide the fraud.

From the original article:

>Whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million.

The incentives work fine in this case. The whistleblower gets a fraction of the fine recovered from the perpetrator, so the net effect for the government is still positive.

The lack of information about who got the award and why seems like a huge problem.

Who's to say that someone at the SEC didn't get a kickback for this? Or that this didn't go to some friend of the President?

Whoever this is, they didn't inform on the mob. Maybe disclosure would be awkward for them professionally -- but with $17mm in hand, I'm not sure how much that matters.

Whistle blowers have gotten death threats before, hence the privacy.

Plus the guarantee that if your name is published, you’ll have a hell of a hard time getting another job in your industry (not that this should be true, but I suspect that it is anyway).

Maybe if someone inside the SEC finds corruption they can get a meta-whistleblower award.

There’s probably an exclusion in the law that prevents employees of the SEC from getting a bounty. But the SEC IG would absolutely investigate a report of something like that, and the civil service has robust protections for whistleblowers against retaliatory actions like getting fired or demoted.

I think whistle blowers should potentially even be eligible for WitSec. These people are likely giving up their career and ability to provide for their family. This is the least we can do for their service.

I'm sure if the whistleblower thinks their name should be public, they'll do an interview somewhere soon. It's good the SEC doesn't treat this like you're winning the lottery, and requiring you do a press conference holding a big check for free PR for Powerball.

This sounds like a terrible way to disincentivize whistle blowing. Could easily ruin your career or be life threatening

As set forth in the Dodd-Frank Act, the SEC protects the confidentiality of whistleblowers and does not disclose any information that could reveal a whistleblower’s identity.

Just have to start scanning for $17M bank deposits.

Wonder what the violation(s) were and how much they fined whatever entity. And if anybody is working on their backhand before they go to white-collar prison.

[Edit] Down voting me is like a backhanded compliment. Just sayin'...

Could be a small amount every x days?

> Could be a small amount every x days?

I thought "structuring" was illegal.

Hmm, maybe they could be paid in bitcoin?

Never heard about "structuring" before. Gonna have to look it up.

I don't think anti-money laundering laws apply to federal agencies. The SEC isn't hiding this payment from the IRS, in this hypothetical scenario they are just hiding it from the bank employees. In reality, I don't think any bank employee is going to see if a customer got "more than $17M" and assume that they're a whistleblower and... do something with that.

Even if the SEC structured these payments, I highly doubt they'd be under $10k each. It would take way too long.

It’s the government; couldn’t they just hand the whistleblower a $17MM stack of paper treasury bonds? (Or, more realistically, credit $17MM of bonds to the whistleblower’s treasury direct account.)

Structuring is illegal if it's designed to avoid federal reporting thresholds. You're perfectly able to structure your payments as long as each one is above $10,000 US without it triggering any US law. I believe there is also paperwork you can fill out to structure payments below $10,000 apiece (the reason you have to fill out paperwork in that case is to prove the reason for the many smaller payments wasn't to avoid the bank filling out that paperwork on your behalf.)

Meanwhile, lottery winners, people employed at a business and many others receive money at regular intervals.

> Whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million.

Seems like it would be in the range of $56m-$170m, then.

could be this case. the amount looks right https://www.sec.gov/news/press-release/2021-262

Or this one https://www.sec.gov/news/press-release/2022-114

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