No One Knew it Existed: The SEC's Bounty Program

Since its inception in 1989, the SEC has paid out a grand total of $159,537. Five claimants have received money from the program since 1989, with one claimant taking home the bulk, $100k. The other four split $60,000. Bounty can’t exceed 10% of the amount recovered from a civil penalty but that limitation doesn’t seem to have been the problem, according to Assessment of the SEC’s Bounty Program,” released by SEC Inspector General H. David Kotz. The SEC report recommends adopting the

“best practices obtained from DOJ and the IRS into the SEC bounty program with respect to bounty applications, analysis of whistleblower information, tracking of whistleblower complaints, recordkeeping practices, and continual assessment of the whistleblower program… improvements are needed to the bounty application process to make it more user-friendly and help ensure that bounty applications provide detailed information regarding the alleged securities law violations. We also found that the criteria for judging bounty applications are broad and the SEC has not put in place internal policies and procedures to assist staff in assessing contributions made by whistleblowers and making bounty award determinations. Additionally, we found that the Commission does not routinely provide status reports to whistleblowers regarding their bounty applications, even if a whistleblower’s information led to an investigation. Moreover, we found that once bounty applications are received by the SEC and forwarded to appropriate staff for review and further consideration, they are not tracked to ensure they are timely and adequately reviewed. Lastly, we found that files regarding bounty referrals did not always contain complete documentation, such as a copy of the bounty application, a memorandum sent to the whistleblower to acknowledge receipt of the application, and a referral memorandum showing the office or division and official to whom the bounty application was referred for further consideration.

Harry Markopolos, who tried to warn the SEC about Bernard Madoff couldn’t get the SEC’s attention and later wrote No One Would Listen: A True Financial Thriller. Let’s hope their own Inspector General can get enough attention focused on the problem to fix it. (see SEC IG’s Report Details Insider Trading Bounties, Compliance Week, 4/2/10; $159,537 In Total Payments to Whistleblowers by the SEC Since 1989, DaveManuel.com, 4/2/10; The SEC’s Bounty Program, The Corporate Counsel.net Blog, 4/6/10)