Indiana awards whistleblower $95K with more whistleblowers likely in financial advice sector
Earlier this month, Indiana announced its first whistleblower award, giving $95,000 to a former JP Morgan official who helped the state’s regulators make an advice-related case against the firm that resulted in a $950,000 settlement. The informant showed how the firm failed to make proper disclosures to clients about proprietary funds in discretionary accounts. The whistleblower exposed JP Morgan for putting its interests before its clients.
Federal and state securities regulators are relying more on firm insiders to uncover wrongdoing. As a result, the investment advice sector may find itself more vulnerable to whistleblowing.
The Securities and Exchange Commission has been awarding whistleblowers since 2011. To date, the SEC has paid $107 million to 33 whistleblowers. An inside source can provide regulators with a portrait of malfeasance, something that wronged investors are unable to fully do.
Alex Glass, Indiana securities commissioner, has said that the whistleblower awards are likely to go to the executives within a firm that have an overview of all firm activity.
Most whistleblower cases involve insider trading and off-market scams, such as Ponzi schemes. If whistleblowing grows in the advice sector, wirehouses are where most of the activity is likely to take place, because they have wide-ranging operations that can show systemic problems.
According to Keith Woodwell, Utah securities director, it’s in the large broker-dealer environment where whistleblowers are likely to be found.
Indiana and Utah are the only two states that have whistleblower laws. Indiana’s was enacted in 2012 and Utah’s in 2011. The SEC awards can range from 10% to 30% of monetary sanctions of $1 million or more. Indiana pays up to 10% and Utah pays up to 30%, with lower award thresholds.
The team of investment fraud lawyers at Starr Austen & Miller LLP represents whistleblowers and fights for the protection of investors, handling cases involving securities arbitration misrepresentation, overconcentration, broker fraud, negligence and breach of trust.