Tipsters used complex analysis to uncover misconduct

U.S. regulators have rewarded a group of whistleblowers, including two who sniffed out suspected misconduct in publicly available information.

The U.S. Securities and Exchange Commission (SEC) collectively awarded approximately US$2.6 million to five whistleblowers who helped the regulator bring three separate enforcement proceedings.

The largest award of US$1.2 million went to a tipster who provided the SEC with “independent analysis based upon a complex algorithm the whistleblower developed and applied to publicly available data,” the commission said.

The information provided by the whistleblower saved the regulator time and resources in that case, and helped it during settlement negotiations, the SEC noted.

In a second case, the SEC awarded US$350,000 to a whistleblower who uncovered and reported apparent misconduct involving a micro-cap company, again based on analysis of public information.

According to the SEC’s order, the whistleblower in that case “identified a microcap company whose stock was the subject of a suspicious promotional campaign.”

The information that second individual provided to regulators included “a comparison of the language in touting emails with emails in other promotional campaigns.” Additionally, the individual leveraged “expertise developed over many years and helped establish the connection between the company and previous or ongoing promotional campaigns that were suspicious in nature,” the SEC said.

Tipping off the SEC allowed the regulator to “quickly identify and prevent wrongdoing and to preserve assets,” it said.

Finally, the SEC also awarded more than US$1 million to three tipsters who alerted the commission to misconduct at their own firm.

“While the whistleblowers held compliance roles at the company, they remained eligible for an award because they submitted their information to the commission more than 120 days after the alleged conduct had been reported internally,” the SEC said.

The SEC has now awarded approximately US$959 million to 203 whistleblowers under its program, which issued its first award in 2012.

“Today’s awards demonstrate the commission’s commitment to reward whistleblowers who provide valuable information, developed either from a whistleblower’s independent knowledge or the whistleblower’s independent analysis, which substantially contributes to a successful enforcement action,” said Emily Pasquinelli, acting chief of the SEC’s Office of the Whistleblower, in a release.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.