66 Pages Posted: 25 Apr 2017 Last revised: 26 Apr 2017
Date Written: April 25, 2017
Since its inception in August 2011, the SEC’s whistleblowing program has received over 18,000 tips and has distributed over thirty awards. The Commission’s Enforcement Division has lauded the program, emphasizing its recoveries (over $500 million in the aggregate) as well as its generous bounties (over $100 million total). Nevertheless, an agency focused on deterrence must pay attention to the volume of credible reports it receives from insiders, particularly because deterrence has been shown to rest so strongly on the putative wrongdoer’s perceived probability of detection. From that perspective, the program’s success is more ambiguous: twenty-six covered actions (some involving more than one whistleblower) derived from a field of more than 18,000 tips.
This Article advances an explanation for the program’s modest “hit rate” namely whistleblowing’s effect on the probability of criminal sanction. If employees who possess the most concrete information of wrongdoing are also those most exposed to criminal prosecution, whistleblowing morphs into self-incrimination. This is so because the whistleblower who voluntarily discloses her participation strips herself of her most effective legal protection, the government’s difficulty in establishing her guilty state of mind.
To demonstrate this dynamic, the Article introduces two types of employees: Complicits (those who have violated the law) and Innocents (those with no legal exposure whatsoever). Whereas Complicits possess more valuable information, they are less incentivized to seek a financial bounty. The Article then identifies the legal, psychological and organizational factors most likely to inflate the number of Complicits within the firm, thereby depressing the pool of potential whistleblowers. The Article then considers the various strategies policymakers might employ to either dampen or undo this effect.
Keywords: fraud, whistleblowers, bounties, conspiracy, complicity, deterrence, Dodd-Frank, securities, enforcement
Suggested Citation: Suggested Citation
Baer, Miriam H., Reconceptualizing the Whistleblower's Dilemma (April 25, 2017). UC Davis Law Review, Forthcoming; Brooklyn Law School, Legal Studies Paper No. 502. Available at SSRN: https://ssrn.com/abstract=2958226