According to a New York Times article this week entitled “To Crack Down on Securities Fraud, States Reward Whistle-Blowers,” securities regulators in Indiana and Utah are using informants, also known as “whistle-blowers,” to protect their residents from financial harm. Whistle-blowers have been helping regulators at the federal level for quite some time now, and now the states themselves are getting involved.
An Indiana whistle-blower was awarded $95,000 for helping state regulators bring an enforcement action against JP Morgan Chase for failing to disclose conflicts of interest to clients about the way the bank invested their money. That was the first award given under Indiana’s whistle-blower program aimed at securities law violators. In this particular case, the informant told regulators about JP Morgan’s practice of steering clients into in-house funds that generated more costs to the clients, and, at the same time, more fees to the bank itself. The award stated JP Morgan’s practices as “outside the standards of honesty and ethics generally accepted in the securities trade and industry.” Indiana’s program was adopted in 2012 by its state legislature and officials can award up to 10% of monetary sanctions received in an enforcement statement to the whistle-blower.
Utah’s program, adopted in May 2011, allows a whistle-blower to receive up to 30% of the proceeds as an award. The first award Utah awarded was in 2014 to an investment adviser who told officials about $150,000 in questionable transactions he had witnessed while analyzing an elderly client’s holdings. He received $20,000 of the money.