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As government agencies continue to pepper banks like Bank of America Corp. (NYSE:BAC), Citigroup (NYSE:C) and JPMorgan Chase & Co. (NYSE:JPM) with lawsuits tied to fraudulent behavior, they have often been aided by insiders willing to turn over first-hand information for a cut of the action.

Over the past 18 months, the Security and Exchange Commission's Office of the Whistleblower has rewarded six informers for tips that led to monetary penalties. The awards can be pretty hefty. Since its inception in 2011 under the auspices of Dodd-Frank, the SEC has awarded six whistleblowers amounts ranging from $25,000 to $14 million.

The Department of Justice also pays out whistleblower awards, under the False Claims Act and the Financial Institutions Reform, Recovery and Enforcement Act. Very recently, Keith Edwards, a former JPMorgan executive, received almost $64 million for sharing with government prosecutors information that led to the bank's $614 million settlement. In that case, JPMorgan paid up to settle claims that it had hoodwinked government agencies such as the Federal Housing Administration into insuring bad loans.

Big bucks for telling tales
It was a former high-level employee that helped the government win its "Hustle" case against Bank of America last fall, too. Edward O'Donnell originally filed his 2012 lawsuit against B of A under the False Claims Act, but those charges were dismissed. Luckily, he also filed under FIRREA – something that experts expect to become more commonplace, in order to preserve whistleblower awards if the case is won.

O'Donnell's award is limited to $1.6 million under FIRREA; under the False Claims Act, he might have gotten anywhere from 15% to 30% of the settlement amount. The government is asking for $2.1 billion in the Hustle case.

Not bad, but it can't touch the amount of Edwards' award, or the $31 million payday received in 2012 by Sherry Hunt in her whistleblower case against Citigroup. A former vice-president in Citi's mortgage section, she sued the bank in 2011 rather than rubber-stamp crummy loans. Early in 2012, Treasury joined her suit, resulting in a settlement of over $158 million.

Beefing up whistleblower programs
With the recent JPMorgan and Bank of America wins under its belt, the government is looking to boost whistleblower reward programs. Groups such as Taxpayers Against Fraud note that if the SEC doesn't continue to step up its awards to informers, prospective whistleblowers might doubt its commitment. Of the six cases it has paid out awards, four took place last year.

Still, those six awards came out of over 430 cases in which penalties of $1 million or more were collected, the required amount for eligibility. If the government continues to garner big paydays similar to the recent JPMorgan case, however, that 10% to 30% commission it pays to knowledgeable informants might be money well spent.

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Amanda Alix has no position in any stocks mentioned. The Motley Fool recommends Bank of America. The Motley Fool owns shares of Bank of America, Citigroup, and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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