Million-Dollar Whistleblower Rewards: Good or Bad?

Through a new reward program for whistleblowers, the U.S. Securities and Exchange Commission offers multi-million-dollar payments for reporting fraud. Innovative crime-fighting program or state-sponsored bounty for disloyal employees? 

The Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law by U.S. President Obama on July 16, created a reward program that offers individuals who provide ¨original information¨ to the SEC up to 30 percent of any successful corporate penalty that exceeds $1 million.

The potential size of rewards -- the German conglomerate Siemens paid a record-breaking $800 million in 2008 for violating the Foreign Corrupt Practices Act -- raises questions whether the program will enhance corporate crime-fighting or whether it simply enhances the wealth of disgruntled and greedy employees.

The details of the program are still to be hammered out during a 270-day rulemaking process. But Just last month, the agency awarded $1 million to the ex-spouse of an executive at Connecticut-based Pequot Capital Management.

"The way that the act is structured,¨ said Ross Booher, a partner at Bass, Berry & Sims in Tennessee, ¨some employees may perceive that it is in their interest to very quickly report any perceived problems directly to the SEC as opposed to quickly informing their own employers or compliance officials."

In a recent example of this, pharma giant Astra Zeneca settled for paying about half a billion dollars on the basis of information provided by whistleblower James Wetta, who a few years ago had achieved a similar settlement with Eli Lilly and shared a settlement of $100 million with a few others.

This time Wetta stands to receive over $20 million.

Michael Mann's 1999 movie ¨The Insider¨ portrays Russell Crowe as a whistleblower. By going public with sensitive inside information despite pressure by corporate managers to stay silent, tobacco executive Jeffrey Wigand showed how whistleblowers can and do act in the public interest. As I tell the story in The Rabbi and the CEO, 

Jeffrey S. Wigand ¨had all the trappings of a successful corporate executive¨; then, in March 1993, in the blink of an eye, he went from $300,000 a year plus stock options to a high-school teacher's salary of $30,000... He claims he even received anonymous death threats. His marriage fell apart when his wife couldn't deal with the pressure.

Instead of making millions from reporting fraud, Wigand lost millions in corporate compensation, not to speak of his marriage. 

After being fired, Wigand formed his own foundation, Smoke-Free Kids, to teach children about the dangers of tobacco. The foundation has a staff of one: him. But he got one thing out of the ordeal: he can look straight into the mirror without averting his eyes. ¨I am at peace with myself. I have a good name now. It's a very good name and I protect it very much.¨ He added: ¨My name stands for integrity. I can't describe to you what it is like to have that feeling.

Wigand decided to be a whistleblower not for personal gain, but because it was the right thing to do. 

Some argue that Washington has taken the ¨whistleblower principle¨ too far, and that the SEC program threatens to destroy the moral legitimation of whistleblowers and give rise to a cottage industry of lucrative knowledge trading.

On the other hand, how often does a guy like Wigand come along? Perhaps in the 21st century, people do need to be helped along with some financial incentives?


What do you think? Will the SEC's whistleblower reward program help fight corporate crime, or will it backfire and generate lots of useless ¨information¨ by greedy disgruntled ex-employees? I look forward to reading your comments on my blog.

P.S. To invite your friends or colleagues into the conversation, click on the ¨Share¨ button above and/or retweet it. For tools on leadership ethics, check out my book The Rabbi and the CEO: The Ten Commandments for 21st Century Leaders and/or the ¨Rabbi & CEO¨ workshop.