Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Blowing the Whistle on Banks’ Misbehavior Can Be Worth Millions

Flickr / stevendepolo.

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.

Big banking's little $20.8 trillion secret
Do you hate your bank? If you're like most Americans, chances are good that you answered yes to that question. While that's not great news for consumers, it certainly creates opportunity for savvy investors. That's because there's a brand-new company that's revolutionizing banking, and is poised to kill the hated traditional brick-and-mortar banking model. And amazingly, despite its rapid growth, this company is still flying under the radar of Wall Street. To learn about about this company, click here to access our new special free report.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2898626, ~/Articles/ArticleHandler.aspx, 9/4/2015 8:31:19 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Amanda Alix

Foolish financial writer since early 2012, striving to demystify the intriguing field of finance -- which, contrary to popular opinion, is truly what makes the world go 'round.

Today's Market

updated 11 hours ago Sponsored by:
DOW 16,374.76 23.38 0.14%
S&P 500 1,951.13 2.27 0.12%
NASD 4,733.50 0.00 0.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/3/2015 4:01 PM
BAC $15.94 Down +0.00 +0.00%
Bank of America CAPS Rating: ****
C $51.79 Down +0.00 +0.00%
Citigroup Inc CAPS Rating: ***
JPM $62.68 Down +0.00 +0.00%
JPMorgan Chase & C… CAPS Rating: ****