The Whistleblower Industrial Complex

Although the whistleblower programs (WBPs) created by Dodd-Frank have received universal acclaim, little is known about how they actually work. In 2021, the Securities and Exchange Commission (SEC) received an average of forty-nine whistleblower tips every workday. Success depends on sifting through...

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Bibliographic Details
Published in:Yale journal on regulation 2023, Vol.40 (2), p.688-758
Main Author: Platt, Alexander I
Format: Article
Language:English
Subjects:
Accountability
Attorneys
Awards & honors
Brightness
Commodity futures
Contingent fees
Freedom of information
Futures trading
Investigations
Outsourcing
Payments
Privatization
Public interest
Secrecy
Securities
Transparency
Whistleblowing
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Summary:Although the whistleblower programs (WBPs) created by Dodd-Frank have received universal acclaim, little is known about how they actually work. In 2021, the Securities and Exchange Commission (SEC) received an average of forty-nine whistleblower tips every workday. Success depends on sifting through this avalanche of tips to determine which ones to investigate. To date, however, the tip-sifting process has been entirely shrouded in secrecy. This Article breaks new ground. It offers a rare look inside the WBPs administered by both the SEC and the Commodity Futures Trading Commission (CFTC), shining a bright light on the critical role played by private whistleblower attorneys in the tip-sifting process. Using a new dataset comprised of informationi obtained under the Freedom of Information Act, I find (among other things) that tipsters represented by lawyers appear to significantly outperform unrepresented ones, repeat-player lawyers appear to outperform first-timers, and lawyers who used to work at the SEC appear to outperform just about everybody. The upshot is that the SEC and CFTC have effectively privatized the tipsifting function at the core of the WBPs. Private lawyers have earned hundreds of millions of dollars in fees from these programs, with a disproportionate share going to a concentrated group of well-connected repeat players. Unlike traditional plaintiff-side securities attorneys and attorneys who represent clients seeking government payments in many other contexts, private whistleblower lawyers operate free from virtually all public accountability, transparency, or regulation. I highlight significant efficiency and accountability deficits imposed by this private outsourcing program and propose reforms to realign these private actors with the public interest.
ISSN:0741-9457
2376-5925