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Better Bounty Hunting: How the SEC's New Whistleblower Program Changes the Securities Fraud Class Action Debate

69 Pages Posted: 4 Aug 2013 Last revised: 4 Dec 2014

Amanda M. Rose

Vanderbilt University - Law School

Date Written: December 3, 2014

Abstract

The SEC’s new whistleblower bounty program has provoked significant controversy. That controversy has centered on the failure of the implementing rules to make internal reporting through corporate compliance departments a prerequisite to recovery. This Article approaches the new program with a broader lens, examining its impact on the longstanding debate over fraud-on-the-market (FOTM) class actions. The Article demonstrates how the bounty program, if successful, will replicate the fraud deterrence benefits of FOTM class actions while simultaneously increasing the costs of such suits — rendering them a pointless yet expensive redundancy. If instead the SEC proves incapable of effectively administering the bounty program, the Article shows how amending it to include a qui tam provision for Rule 10b-5 violations would offer several advantages over retaining FOTM class actions. Either way, the bounty program has important and previously unrecognized implications that policymakers should not ignore.

Keywords: securities fraud, deterrence, class actions, fraud on the market, whistleblowing, whistleblower bounty program, qui tam

Suggested Citation

Rose, Amanda M., Better Bounty Hunting: How the SEC's New Whistleblower Program Changes the Securities Fraud Class Action Debate (December 3, 2014). Northwestern University Law Review, Forthcoming; Vanderbilt Public Law Research Paper No. 13-34. Available at SSRN: https://ssrn.com/abstract=2305403 or http://dx.doi.org/10.2139/ssrn.2305403

Amanda M. Rose (Contact Author)

Vanderbilt University - Law School ( email )

131 21st Avenue South
Nashville, TN 37203-1181
United States

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