Using Greed—and Lots of Cash—to Fight Greed
Forget what you think you know about lone whistleblowers taking on giant corporations all by themselves. These days, there's a cottage industry to support—and profit from—whistleblowing.
At the headquarters of the National Whistleblowers Center, for example, employees cast a wide net for potential informants.
And the Center’s Executive Director, Stephen Kohn, says he’s looking for people with the most insider information about wrongdoing.
"I am really looking for folks who are actually involved in the misconduct, who learn that they can make money by turning in their co-conspirators,” he says. “I am looking for greed to be used to fight greed."
The lawyers involved in whistleblower cases aren’t shy about trolling for clients. In the wake of new Dodd-Frank rules, attorney Stuart Meissner began running an ad looking for Wall Street insiders in Manhattan movie theaters showing the film "Wall Street 2: Money Never Sleeps."
The ads highlighted his new website, www.SECsnitch.com. And he’s not apologetic about the dramatic wording. "I thought it was a catchy title that people would remember. I was a former marketing major way back when in college," Meissner says.
The lawyers often take these cases on-spec, with no cash upfront. But they can pocket up to as much as 40 percent of the awards received, meaning that in the biggest cases, the lawyers see paydays in the tens of millions of dollars.
Over at the SEC, officials say they’ve already seen a significant increase in high quality tips as a result of new Dodd-Frank whistleblower rules. "We're gonna get information hopefully sooner on in the life cycle of a fraudulent scheme, so that there's less investor loss, less harm,” said SEC Enforcement Director Robert Khuzami. “We can put an end to it sooner.”
Although it will be relatively new on Wall Street, whistleblowing has been growing for years in the rest of the economy. In 1988, there were 43 whistleblower cases, and the government netted over $2 million in settlements and paid over $97,000 to the whistleblowers.
But in 2010, there were 573 of the cases, known as “qui tam” in legal jargon, generating $2.3 billion in settlements. And the government paid out more than $385 million to the whistleblowers involved.
Those numbers are only going to get bigger. The SEC expects to receive 30,000 tips this year —and they say they've already seen a significant uptick in the number of high-quality leads as a result of the new whistleblower rules.