Get millions of dollars to shop a banker?

The US is offering big new incentives for Wall Street whistleblowing. A new bonus route for bankers?

by
Last Updated: 31 Aug 2010

It looks, on the face of it, like a win-win: the Securities and Exchange Commission (the US financial regulator) is apparently expecting a big rise in tip-offs against Wall Street firms - because new reforms mean whistleblowers will be entitled to a share of any resulting settlement. Since this share could be as high as 30%, and the sums can involved can run into eight figures, that's a hell of an incentive to grass up a banker. So, one for the City to copy? Possibly. Although it's worth remembering that the people most likely to shop bankers, and therefore profit from their downfall, are - that's right - other bankers...

The new incentives for whistleblowing are part of the Dodd-Frank financial reform act, part of the various new laws designed by the US government to keep Wall Street on a tighter leash (a case of shutting the gate after the horse has bolted, you might argue, but still). If you provide information that allows the SEC to bring a successful action, you get 10-30% of the proceeds - and as one legal expert told the FT today, recent settlements have been as large as $800m. With an upside like that, we suspect there'll be a few people on Wall Street belatedly discovering their consciences (and some ambulance-chasing lawyers licking their lips).

So could it work in the UK? Well, the FSA may have been baring its teeth a bit lately, but the authorities here don't exactly have a fearsome reputation when it comes to pursuing fraud cases. And since that's due in no small part to a lack of resources, which if anything are likely to get even more scarce in the coming years, it's hard to see that changing. The SEC is already facing questions about how it's going to cope with a huge spike in tip-offs; is it really likely that the FSA (or whatever replaces it) will be able to justify hiring a load of new people to do something like this? However sensible the economic argument, it might be a bit tricky politically.

The other issue is where these bountiful rewards are likely to end up. Although the idea of shopping a load of dodgy bankers and picking up a big fat cheque all sounds very nice and Erin Brockovich, the fact is that the people best placed to do this will be other bankers. So if the government cracks down on their seven-figure bonus, they'll be able to grass up some of their less scrupulous colleagues to make up the difference. When you look at it that way, the whole idea seems a bit less attractive, somehow.  


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