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So What Are The Odds?

Last week, the Securities and Exchange Commission proposed several amendments to its  whistleblower bounty program rules.  Congress ordered the SEC (subject, of course, to certain conditions) to pay awards to eligible whistleblowers who voluntarily provide the SEC with original information about a violation of the federal securities laws that leads to the successful enforcement of a covered judicial or administrative action, or a related action. 15 U.S.C. § 78u-6.  In 2011, the SEC duly adopted implementing regulations.

In earlier posts, I have found fault with the lack of transparency and accountability of the awards program.  The size of the awards, the limited number of recipients and minimal disclosure all seem to be a recipe for future scandal. The SEC's proposed amendments do not address these concerns.  

The SEC's release does provide some eye-popping data.  As a result of the program, the SEC has received over 22,000 tips and ordered payouts over $266 million.  That is a lot of tips and a great deal of money.  For some perspective, the SEC's budget authority for 2018 is $1.652 billion.  Thus $266 million is equivalent to about 16% of the SEC's 2018 budget authority.  Here in California, this $266 million represents 8.5 times the amounts appropriated by the California legislature for support of the California Department of Business Oversight's investment program.

It turns out that the wealth is not being spread around.  Just four individuals received 42% of the total awards (∼$112 million).  In total, only 55 individuals have received awards.  That means that the odds of receiving an award are less than 0.0025!  While it is true that the odds of winning the California lottery are much worse, those odds aren't very encouraging.  

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