WASHINGTON — Blow the whistle on financial fraud, earn valuable rewards.
The SEC approved rules Wednesday that could make it highly lucrative for Wall Street whistle-blowers and other corporate insiders to alert the agency to securities violations.
The agency was acting at the behest of Congress and President Barack Obama, who mandated the rewards last year in legislation responding to the mortgage meltdown.
Under the rules, whistle-blowers will be entitled to receive 10 to 30 percent of the money they help the SEC collect through enforcement actions.
Corporations had lobbied intensely for rules that would impose constraints on whistle-blowers. But a majority of SEC commissioners rejected pleas by business groups that, before going to the SEC, whistle-blowers should be required to notify the companies they are accusing of wrongdoing and give them a chance to address the allegations.
"Today's rules are intended to break the silence of those who see a wrong," SEC Chairwoman Mary Schapiro said. "For an agency with limited resources like the SEC, I believe it is critical to be able to leverage the resources of people who may have first-hand information about potential violations of the law."
Schapiro, an independent, and two Democratic commissioners voted for the rules over the opposition of two Republican commissioners.
Republican Commissioner Kathleen Casey said that, by allowing whistle-blowers to bypass companies' internal compliance programs and go straight to the SEC, the agency might not be able to review the allegations quickly, letting violations grow more serious. She said the SEC was overestimating its own ability to sift through complaints from tipsters.
Whistle-blower advocates said they were surprised and relieved by the outcome.
"It was a great day for whistle-blowers," said lawyer Stephen Kohn, executive director of the National Whistleblowers Center. "The SEC refused to buckle under tremendous pressure from Wall Street lobbyists, led by the Chamber of Commerce, who worked overtime trying to undermine historic corporate whistle-blower protections."
The U.S. Chamber of Commerce, a chief critic of the proposal, condemned the vote.
"This rule will make it harder and slower to detect and stop corporate fraud," leaders of the group said in a statement. "Not informing the company of a potential fraud and waiting for the SEC to act is the equivalent of not calling the firefighters down the street to put out a raging fire and instead calling the lawyers from the next town to sue over the fire."
Business groups had argued that the SEC would be overwhelmed with tips, many of them unfounded or irrelevant to securities enforcement, such as complaints based on personnel disputes.
But SEC enforcement director Robert Khuzami told commissioners Wednesday that he saw no evidence of such problems. Rather, the agency has already seen an increase in high-quality tips with detailed supporting information, Khuzami said.