For years, the Securities and Exchange Commission had a whistleblower program in place that would accept information about securities violations in exchange for the possibility of a financial reward if funds were recovered. Nonetheless, over the years, only five whistleblower claims were ever paid.
The reason appears clear. The program was administered entirely at the discretion of the SEC. One example of the failure of the prior program is Harry Markopolos, a former investment officer for a company that competed with Bernie Madoff’s investment firm. Markopolos’ investment firm assigned him to analyze the basis for Madoff’s unbelievable returns to see if they could be duplicated. His analysis concluded that Madoff was either involved in front running or a giant Ponzi scheme. He tried in vain for years to persuade the SEC to investigate Madoff, but the SEC completely ignored Markopolos’ warnings. Madoff’s fraud was only revealed when his own children learned the truth and turned him in.
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