It took over five years, but we finally have a success story in the "professional whistleblower" area that I have been wondering about here since September 2010. On Friday, the SEC announced that it has awarded more than $700,000 to an industry expert (who was a company outsider) who conducted a detailed analysis that led to a successful SEC enforcement action. Sean X. McKessy, Chief of the SEC’s Office of the Whistleblower, stated that the award

"demonstrates the Commission’s commitment to awarding those who voluntarily provide independent analysis as well as independent knowledge of securities law violations to the agency.  We welcome analytical information from those with in-depth market knowledge and experience that may provide the springboard for an investigation.”

The $700,000 award is the first award that the SEC has ever given to a whistleblower from outside the company. Under Section 922 of Dodd-Frank, the whistleblower need not be an employee of the company in question, but can be any individual who provides information relating to a violation of the securities laws to the SEC. As Dow Jones reported back in 2010, this open-ended definition may well have been "inspired by Harry Markopolos, who hounded the SEC for years with his hunch that Madoff was running a giant Ponzi scheme."

 

In March 2012, I conducted a webcast with McKessy and Vincente Martinez, who was then the head of the newly-established Whistleblower Offices at the CFTC. McKessy confirmed at that time, as well, that Dodd-Frank allows for this type of professional whistleblower and he stated that the SEC wanted to actively encourage such people to "connect dots in ways that they hadn't been connected before and in ways that our own Enforcement people hadn't done."

 

Although it took a while, the $700,000 award announced on Friday confirms that company outsiders can, in fact, profit very handsomely if they are able to help the SEC "connect the dots" of a securities fraud through their own independent analysis.

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