U.S. Attorney General Eric Holder would like to see the government boost rewards given to whistleblowers in the financial sector who come forward with inside information on corporate wrongdoing. Holder gave a speech last week at New York University in which he called the current maximum payout for a financial whistleblower under the Financial Institutions Reform, Recover and Enforcement Act (FIRREA) a “paltry sum.” Larger rewards are needed, according to A.G. Holder, in order to induce high paying executives to come forward.
At present, financial whistleblowers that come forward with fraud tips can only receive a maximum payout of $1.6 million, which is a far cry from what whistleblowers are eligible to receive under False Claims Act lawsuits, which reward whistleblowers with 15 to 25 percent of any recovered money. When one considers that the median pay for an executive in the financial sector is upwards of $15 million per year, it doesn’t take a genius to see that $1.6 million simply isn’t enough for someone to risk such a lucrative career.
Despite the Department of Justice (DOJ) bringing over 60 fraud cases against financial firms over the last five years resulting in recoveries of roughly $85 billion, DOJ realizes the need to go after individuals responsible for fraud rather than just going after the companies that employ them. This, according to Holder, enhances accountability because companies don’t exclusively commit corporate fraud by themselves, company officials who engage in misconduct commit corporate fraud, and they need to be held responsible for their decision-making.
This is where the Justice Department finds itself hamstringed: discovering prosecutable evidence of an individual’s intent to deceive in a financial fraud case is usually only possible if there are cooperating witnesses, and cooperating witnesses are only going to come forward if they have incentive to do so. “Many financial criminals are savvy enough to avoid using email, which may leave a trail for investigators to follow,” said Holder in his speech. “And intent may only be evidenced sometimes in the form of verbal instructions – evidence that can provide the sort of “smoking gun” that is needed to secure a conviction: but that can only be attained from a cooperating witness.”
Holder closed his speech by highlighting the need to change the whistleblower provision in FIRREA (“perhaps to False Claims Act levels”) in order to incentivize financial whistleblower cooperation. “This could significantly improve the Justice Department’s ability to gather evidence of wrongdoing while complex financial crimes are still in progress – making it easier to complete investigations and to stop misconduct before it becomes so widespread that it foments the next crisis.”