A recent academic paper found that whistleblower involvement in financial misrepresentation enforcement actions tends to increase (1) penalties against firms by an average of $77 million, (2) penalties against employees by an average of $39 million, (3) prison sentences by an average of 22 months, and (4) the duration of the enforcement action by roughly ten months.
The study authors reviewed more than 1,000 financial misrepresentation enforcement actions brought by the Securities and Exchange Commission and Department of Justice between 1978 and 2012. Of those, 145 actions involved at least one whistleblower. After controlling for various factors, such as the number and type of violations alleged, the authors concluded that whistleblowers provide significant benefits to regulators at a slight cost.
On average, whistleblowers assisted regulators in obtaining firm and employee penalties of more than $16 billion beyond what they would have obtained without whistleblowers’ involvement. However, whistleblowers prolong the investigation and enforcement process by an average of ten months. The authors suggest that, rather than streamline the enforcement process by providing a “roadmap” of violations, whistleblowers may provide additional information that must be investigated.
Andrew C. Call et al., The Impact of Whistleblowers on Financial Misrepresentation Enforcement Actions (Dec. 2014), available here.