A recent study argues that the SEC's whistleblower program is dominated by high-priced law firms.
Those firms can take 30%-40% of the whistleblower's bounty, lowering incentives for tipsters to come forward.
Unrepresented tipsters also tend to get a smaller reward than those represented by a big firm.
The Securities and Exchange Commission has given out over $1 billion in rewards to whistleblowers since 2012, a milestone for a program designed to encourage the reporting of wrongdoing in the financial sector.
But a new study from the University of Kansas Law School says that the agency outsources most of its tip-gathering to high-priced law firms that charge significant fees to whistleblowers. It is a move that may actually discourage tipsters from coming forward and may also ensure that the largest rewards go to people represented by expensive firms versus those who come forward without legal representation.
According to the paper, the SEC gives out twice as many awards and five times as much money to whistleblowers who are represented by a law firm than those who are not.
And those law firms take a significant chunk of money by serving as a middleman: tipsters who are represented need to fork over around 30%-40% of their bounty to lawyers in fees and expenses, the study found – not including other costs of working with the firm.
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