SEC hands out first whistleblower award

By Peter Schroeder - 08/21/12 01:04 PM ET

The Securities and Exchange Commission (SEC) showed off new powers granted it by the Dodd-Frank financial reform law Tuesday, handing out its first-ever award to a whistleblower highlighting financial malfeasance.

The SEC announced the $50,000 award given to an informant that helped the SEC assess more than $1 million in sanctions. The agency declined to identify the recipient, per his or her request, and also did not say what financial fraud that informant's tip helped uncover.

Nonetheless, the announcement marks a first for the Wall Street cop. Among its slew of regulatory overhauls, Dodd-Frank created a whistleblower office for the agency, where it could receive tips from market players that have information tied to financial misbehavior. And the head of that agency suggested more whistleblowers had come forward and could reap benefits for the regulator in the future.

"The whistleblower program is already becoming a success,” said SEC Chairman Mary Schapiro. “We’re seeing high-quality tips that are saving our investigators substantial time and resources.”

In this particular case, the SEC has already collected about $150,000 in penalties out of more than $1 million in eventual sanctions. It added that future charges could come as a result of the investigation, and a share of any future penalties would also find their way to the whistleblower.

Under Dodd-Frank, SEC whistleblowers can receive 10 to 30 percent of any fines collected by the agency that climb over $1 million, if the information they provide helps lead investigators directly to financial fraud.

"This whistleblower provided the exact kind of information and cooperation we were hoping the whistleblower program would attract,” said Robert Khuzami, director of the SEC’s enforcement division. “Had this whistleblower not helped to uncover the full dimensions of the scheme, it is very likely that many more investors would have been victimized.”

The SEC said it actually had two people come forward to reveal this particular fraud, but the award was only given to the one because the second failed to provide information that played a vital role in the enforcement effort. Roughly eight tips a day are coming into the whistleblower office, according to the SEC.