A new study reinforces the role of insiders as a key law enforcement tool.
Executives and corporations are fined an average of $50 million more when a whistleblower is involved in an enforcement action, according to the study by Andrew C. Call, Gerald S. Martin, Nathan Y. Sharp and Jaron H. Wilde. The paper, titled The Impact of Whistleblowers on Financial Misrepresentation Enforcement Actions, is available for download on the Social Science Research Network
The study examined all SEC and DOJ enforcement actions involving financial misrepresentation between 1978 and 2012. It discovered 1,133 enforcement actions brought by the DOJ or SEC under the accounting provisions of the Foreign Corrupt Practices Act. At least one whistleblower was identified in only 12.8 percent of the cases studied, for a total of 145 cases.
Despite the low percentage of enforcement actions, whistleblowers helped the government obtain judgments of more than $20 billion in excess of the amount they would have received without inside information from a tipster. If the government did not have information from whistleblowers, the data suggests it would have received 30% less in penalties during the time period studied.
The data adds further support to a Taxpayers Against Fraud Education Fund published paper by Jack A. Meyer of Health Management Associates called Fighting Medicare & Medicaid Fraud: The Return on Investment from False Claims Act Partnerships. The study of the costs of fighting fraud with the False Claims Act from 2008 to 2012 concluded that the whistleblower statute returns $20 for every $1 invested by the U.S. government.
The study by Call, Martin, Sharpe and Wilde also examined an interesting side issues that is frequently cited by opponents of the new laws rewarding informants. It suggested that the benefits of the excess penalties greatly exceeded any cost to the government of wading through frivolous claims. Although most tips do not lead to enforcement actions according to the data, the additional penalties received by the Government in successful cases would outweigh the cost of examining them as long as less than $25 million is spent on each frivolous tip investigation.