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Next Big Whistleblowers Could Be Advisors

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The SEC handed out its largest whistleblower award to date on Tuesday, handing over a $14 million check to an anonymous individual for help in during a recent enforcement action. And next time, it’s likely that could be a financial advisor raking in millions.

Despite fears regarding the impact of whistleblowing might have on an advisors’ careers, brokers are in a unique position to discover wrongdoing. Financial advisors complete a ton of due diligence, says Jordan Thomas, a former SEC enforcement official who is now a partner with Labaton Sucharow LLP. And that means they get a peak inside not only their own firms, but the financials of clients, as well as investment vehicles as well.

In a July survey of professionals within financial services industry conducted by Labaton Sucharow, 23 percent reported that they had observed or had first-hand knowledge of wrongdoing in the workplace. And over half of the 250 respondents said they believed competitors were engaged in illegal or unethical practices.

“In the coming years, most of the SEC’s and FINRA’s most significant cases will be from whistleblower tips,” Thomas says. The power of Tuesday’s award toward bringing that about is huge, he says. Not only does the award protect the whistleblowers’ anonymity, the amount also peaks interest.

People want to report wrongdoing and move on without getting blacklisted from the industry, Thomas says. The SEC’s refusal to even provide details on the case, as well as shielding the name of the whistleblower’s name and personal information, shows an “unusual level of sensitivity” to this concern, he says.

The $14 million check is also noteworthy because it refutes the common argument that whistleblowing is not worth the time. For people sitting on the fence with knowledge of wrongdoing, this is enough to bring them off of it.  It’s like the lottery, Thomas says, “the bigger the pot, the more people play.”

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