The federal government is encouraging employees to blow the whistle on company wrongdoing by offering what can be enormous financial incentives.
The federal Dodd-Frank Act offers a “bounty” to employees of public companies who report fraud and other securities violations to the Securities and Exchange Commission. Whistleblowers whose tips lead to a successful enforcement action or court penalty of more than $1 million can now automatically collect up to 30% of the penalty. (Previously, such rewards were at the SEC’s discretion, and were limited to 10% of the penalty.)
The law also provides whistleblowers with more protection against retaliation by their employer, protecting them not only for reporting actual violations, but also for reporting things they reasonably believed were violations, even if it turns out there was no wrongdoing.
Meanwhile, the IRS has gotten into the act by offering similar payouts to workers who report tax fraud by their employers. The IRS program can net a whistleblower up to 15 percent of an IRS recovery under $2 million, and up to 30 percent of a recovery of more than $2 million against a company with at least $200 million in income.
Recently, three Massachusetts whistleblowers collected 15% of a $7.5 million SEC judgment, and the IRS gave millions of dollars to a UBS bank employee who revealed an alleged scheme to dodge taxes through the Swiss banking system.