Financial scam

It’s been a decade since Bernard Madoff was convicted of perpetrating his multi-million dollar Ponzi scheme.  But that’s just one of the things for which he’ll be remembered.  One of the people who was central to alerting officials to the crime being carried out by Madoff was a forensic accountant, Harry Markopolos.

At Markopolos’ urging, the Securities and Exchange Commission initiated a cash-for-tips program which was designed to encourage those who had knowledge of financial wrong-doing to report that information to the SEC.  That program, Whistleblower Inc., is now at the center of the concerted effort to ferret out financial wrong-doing, before it reaches Madoff proportions.  Company insiders and expert analysts who scrutinize corporate filings are involved in the all-out effort to stem irregularities before they become akin to Madoff’s activities.  In the process, the whistleblower effort, itself, has become big business.  To date, the fund has paid out more than $326  million to 59 whistleblowers in seven years.  That’s quite a return to the whistleblowers and has resulted in large numbers of tips being filed (5,200 this year) in an effort to share in the payday.  A number of individuals have filed large numbers of frivolous reward requests – and have consequently been banned from participating in the future.  As a result, there is an inordinate amount of time consumed in sorting out the wheat from the chaff, so to speak – that is, what tips have merit versus those that don’t.  It is becoming clear that some revamping of the reward program is needed.  For one thing, it seems that one approach might be to award smaller amounts of remuneration that would still represent adequate compensation, but not so large as to encourage individuals to make a career of trying to snag the big bucks.  The large number of claims filed has also created a backlog – currently, there are over 800 of the 2018 cases filed still pending.  And there are now companies that specialize in representing clients who are filing the whistleblower claims.  Jordan Thomas, a former regulator who helped write the original rules for the whistleblower program, is one of those who has formed a company to represent whistleblowers before the government entities – his clients are responsible for more than $1 billion of the $1.7 billion in penalties obtained by the SEC in cases where whistleblowers had provided the information.  Thomas claims that the program has established “the equivalent of an auxiliary fire department – now the SEC has the benefit of information, materials and expert assistance to investigate and prosecute their cases at no additional cost to the commission.”  Well, that seems like somewhat of a misrepresentation, since it’s the SEC program that ultimately pays out reward amounts to the whistleblowers.  It’s good, however, to see that there are processes to scrutinize complicated business dealings; but, as with most new things, it appears that some revamping of the fledgling “overseers” program is now necessary.

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