Proving yet again that crime does pay and reporting it does not.
We are going to get what we reward. That’s why this kind of corruption is particularly insidious.
The Wall Street Journal has just published a story on how the SEC is way behind on paying whistleblowers awards for information submitted to the agency under a program established as part of Dodd Frank reforms. The impetus for the initiative was that the SEC had ignored Harry Markopolos’ warnings of the Bernie Madoff Ponzi scheme. Congress tried to assure that the agency didn’t have a disincentive to paying whistleblowers by establishing a separate pot of money for the awards that is outside the SEC’s budget.
While the Journal does do a service of sorts in outing that the SEC is way behind on processing whistleblower award claims, it then misleads the public and Congress by not taking a hard look at the SEC’s excuses for this poor performance. The spin starts with the headline: SEC Whistleblower Payouts Slow Amid Deluge of Reward Seekers. In other words, the reader is to believe the agency’s delays are due to it being overburdened by way too many pesky claimants.
We’ll discuss in more detail later that the SEC is almost certainly accurate in saying it does get lots of claims. But many of them are obviously spurious or otherwise invalid and could be dispatched quickly with clerical-level staff if the agency were serious about the program.
Worse, it gives air cover for the SEC’s proposed gutting of the whistleblower program, some of which look to be a violation of statue, by parroting the agency’s claims that they will help speed award processing. The article’s subhead states: “Agency proposes ways to speed up decisions that now take more than two years to make”.
In fact, those measures are ones the SEC can implement now and do not require any rule changes. That raises the question as to why the agency has and continues to sit on its hands regarding whistleblower claim processing.
In other words, the SEC appears to have thrown these unnecessary “speed it up” tweaks in to provide air cover for the ones that do represent actual changes. As we discussed at length in an earlier post, those have the effect of substantially weakening the program and thwarting Congressional intent. That isn’t our opinion. SEC Commissioner Kara Stein, in her dissent, described how the many of the proposed changes to the whistleblower program violate Dodd Frank and hence are not permissible as SEC rules, which can only promulgate statute, not vitiate it.
The bone of contention is that the SEC has not been devoting enough resources to processing whistleblower award claims. It may come as a surprise to most readers, but when whistleblowers submit tips under the SEC’s program, the agency does not automagically determine who and how much to pay out after it undertakes a successful enforcement action. Whistleblowers have a set time period after the SEC has undertaken a successful enforcement action that resulted in the payment of fines and/or the disgorgement of fees and expenses to submit documentation to the SEC showing that information they submitted to the agency was important to the SEC’s action.
The Journal does do a service in documenting how long the delays have become. From its article:
Wall Street’s top regulator now takes more than two years to hand rewards to tipsters who report wrongdoing, a process that lasts longer than the average time it takes to investigate and close an enforcement case….
In 2012 and 2013, the early years of the program, the SEC took about a year to decide if a whistleblower’s tip merited a reward. The average time rose to over two years in the period from 2014 through 2017, when it exceeded four years….