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Our top story is the Securities and Exchange Commission granting the largest monetary award ever to a whistleblower by a U.S. securities regulator. An anonymous tipster living abroad will be receiving more than 30 million dollars as part of a program designed to encourage corporate insiders into reporting wrongdoing.
Earlier this week, the SEC announced that the whistleblower provided critical information regarding ongoing fraudulent actions that would have been extremely difficult to uncover were it not for the disclosed evidence. The regulating agency was given new powers thanks to the 2010 Dodd-Frank Wall Street reform law, which in part allows the government to offer financial awards to whistleblowers.
Prior to the reform, such incentives were limited to cases specifically involving insider trading, thus constraining regulation efforts against illegal activities occurring off the books. The added leverage would presumably result in a greater impact against white-collar crime, with SEC Enforcement Director Andrew Ceresney stating, “This record-breaking award sends a strong message about our commitment to whistleblowers and the value they bring to law enforcement.”
According to a recent Reuters report, the SEC by law is forbidden to reveal the identity of whistleblowers, and so as a result it does not disclose which case a whistleblower helped to crack. However, cases that are serious enough to justify a 30-million plus payout are rare. Since the program’s inception in 2012, about a dozen whistleblowers have been awarded financial compensation, with this most recent award doubling the previous record of 14 million dollars.
Perhaps the most noteworthy point of this case aside from the dollar amount is the international implications, with this being only the fourth time that the SEC has agreed to reward someone living abroad. The agency also emphasized this issue during their press release, which may lead some to speculate that the government may want to expand its long-arm statutes to further control global business operations.
Bigger Government, Bigger Problems
On the outset, tougher regulations and the ability to enforce them seemingly provides a fair playing field for all companies and thus helping to assure free-market competitiveness. The reality, however, is that government oversight is rarely cost-effective, resulting in an artificial barrier to entry as lesser firms find it financially viable to keep up with the financial demands of maintaining compliance. Like the Sarbanes-Oxley Act that was enacted in 2002, new laws in themselves do not prevent corruption, as evidenced by the subprime mortgage crisis and the global financial meltdown just a few years later.
It also distracts from the core hypocrisy that the regulators themselves are involved in the very crimes they profess to eradicate. Recent embarrassing scandals involving the IRS and the NSA have created massive headaches for the Obama administration, and it is highly doubtful that the SEC’s push for greater power is purely for altruistic reasons. While it may sound like a cliché, bigger government always leads to bigger problems.
In financial news, geopolitical turmoil rocked the U.S. equities sector on Thursday only one day after enjoying a surge of bullish momentum from better than expected housing data. The sudden shift in trajectory reflected investor concerns over a Russian parliament proposal to nationalize foreign assets. As a result, the S&P 500 was down 1.62 % while the Dow Jones shed 264 points.
The precious metals sector was amongst the hardest hit, with gold barely above technical support at 1,200 dollars, while silver finished the session at 17.66. Palladium absorbed the worst of the damage, closing four dollars above 800. In digital currencies, bitcoin suffered a significant setback, dropping down to 400 dollars earlier in the week. An attempt at breaching 450 was short-lived, with the currency trading hands at 410 at last count.