Below is the Overview of the report. Read the full report here or click the button below.
Overview
The US economy, businesses, jobs, and standard of living depend on the capital markets to provide much of the money necessary to make all that work. However, that only works if investors – those who have the money and make the decisions of where to invest it – have deep and abiding trust and confidence that those markets are relatively safe and well-run places to put their money. Remember, those investors are from all over the world, and they have a very wide variety of choices of what to invest in and where.
Those who make the choice to invest in the US know that they might lose money on a bad investment. But they are reasonably confident that they won’t just be ripped off or lied to, or, if they are, that there is a reasonable prospect that those who do that will be caught and stopped. So the reason our markets are so successful is because investors trust them.
Put differently, the foundation of US capital markets is investors’ belief that those markets are well-regulated and well-policed. That’s why the Securities and Exchange Commission (“SEC”), the leading regulator of the capital markets, is so important not just to those markets, but to the economy and to the lives and livelihoods of all Americans. However, the SEC can’t do it all alone, which is why the SEC’s whistleblower program was created: to incentivize those who are aware of lawbreaking in the markets to come forward and help the SEC do its job stopping lawbreaking and protecting investors and markets.
By any measure, the SEC’s whistleblower program has been a resounding success. As demonstrated in our previous reports, it has benefited investors by allowing the SEC to pursue enforcement actions resulting in more than $6 billion in monetary sanctions. Whistleblowers who provide the SEC with the original information that leads to these actions receive an award, and this award costs taxpayers nothing because the SEC pays the award from the money it recovers from fraudsters. Whistleblowers receive these awards because they identify misconduct that the SEC might not otherwise uncover.
This means that, if recent reports about potential staffing cuts at the SEC prove true, the importance of the whistleblower program in the coming years will only increase. The Wall Street Journal reports that the Department of Government Efficiency (“DOGE”) will target cuts at agencies including the SEC. One of DOGE’s goals is to reduce the size of the federal workforce, so cuts at the SEC could mean fewer enforcement personnel.
Fewer enforcement personnel at the SEC would be a disaster for investors. The SEC is already underfunded. It must protect investors from potential misconduct at 33,000 regulated entities, 8,300 reporting companies, and 56,000 private funds. As a result, it is already nearly impossible for the SEC to monitor the entirety of the securities markets. Any actions that DOGE took to further reduce the SEC’s enforcement capabilities would only make a difficult task even harder and force greater reliance on private actors.
Any effort to reduce the SEC budget in a non-trivial way would no doubt run through [the enforcement] division since it comprises nearly one-third of the agency’s staff and annual spending. Significant reductions in the number of Enforcement staff would require the agency to be far more selective in choosing cases to investigate and litigate. . . . A scaled down enforcement division would perhaps pursue only mammoth cases where there is widespread investor harm.
This means the SEC would need more help in holding fraudsters accountable. Fortunately, the purpose of the SEC’s whistleblower program is to motivate people who know of securities violations to report them to the SEC and thereby assist the government in identifying and prosecuting individuals who have violated the securities laws. So if the SEC won’t have the resources it needs to investigate anything other than the biggest cases, it will have to rely more heavily on whistleblowers to identify misconduct.
This report highlights the whistleblower program’s accomplishments in fiscal year 2024, the need for the public to understand the benefits to investors that the program provides, and the criticisms—both fair and unfair—that the program faces.
