SEC Inspector General Recommends Bounty Payments for Fraud Tips


As a result of the Madoff mess, Securities and Exchange Commission Inspector General H. David Kotz has recommended a few changes to U.S. securities laws. Compliance Week reports:

Among the modifications [he] suggests is the ability to award a bounty for information leading to the recovery of a civil penalty from any violator of the federal securities laws.


Writer Bruce Carton explains there is already a bounty program in place for insider trading violations, though it is rarely used. In fact, Carton says only four bounty payments totalling $67,570 have been dispersed since the program was set up in 1988. So if that program is basically useless, why try another, broader one? In his report, Kotz points to successful bounty programs in the U.S. Department of Justice and the Internal Revenue Service. He says: Bounty programs are an effective tool to encourage whistleblowers to come forward and would provide necessary incentives for outside entities to bring complaints about possible illegal activity.


As Carton says, though, the SEC would need to actually use the new bounty program for it to make much difference. And it seems someone would need to educate the masses as to what would constitute "possible illegal activity" so that SEC investigators aren't wasting too much time on baseless leads.


Then again, the SEC got all kinds of tips that something was off with Madoff's funds even without a bounty program, and somehow they still missed it. Who knows whether a new approach will work, but it's worth a shot.