August 11, 2016, 00:01 / Finance

SEC whistleblowers will receive $100 million for reporting violations at State Street and BNY Mellon

Part of the money may go to Harry Markopolos, who caught the Bernard Madoff scam before the SEC Tatyana Bochkareva In 2011, the SEC announced the launch of a program for cooperation with insider whistleblowers / Andrew Harnik / AP

Payments by State Street and BNY Mellon under settlement agreements with US authorities exceeded $1.2 billion. In July, State Street agreed to pay $530 million to settle charges of purchasing foreign currency for clients at inflated rates. A significant part of this amount will go to the SEC and the US Department of Justice, writes WSJ. BNY Mellon agreed to pay $714 million in 2015 after authorities suspected that he had defrauded pension funds in foreign exchange transactions for more than 10 years. In July, the SEC said it was waiting three months for whistleblower rewards in the BNY Mellon case.

Under the Dodd-Frank Act, whistleblowers who report fraud at public companies to regulators can claim 10% to 30% of the fines paid. That means Grant Wilson, Peter Cera and Ryan Gagne, who reported wrongdoing at State Street and BNY Mellon to the SEC, could split more than $100 million. Wilson, a former trader at BNY Mellon's Pittsburgh unit, could claim nearly $60 million, calculations show. WSJ, Sera and Gen, who worked at State Street - more than $90 million between them.

The stakes are rising

The SEC has paid $85 million to 32 whistleblowers since 2011. The largest payments were $30 million in September 2014, $17 million in June 2016 and $5 million in May 2015. In fiscal year 2015, the SEC received 4,000 whistleblowing reports from insiders. In 2011 there were 3000 of them

Some of that money is likely to go to lawyer Harry Markopolos, who advised the three whistleblowers. Markopolos became famous for the fact that back in the early 2000s. suspected that Bernard Madoff's hedge fund was a financial pyramid scheme and warned the SEC about it long before December 10, 2008, when Madoff announced the fund's bankruptcy. The SEC did not listen to Markopolos, investors received $18 billion in losses, and Madoff received 150 years in prison. On December 22, 2008, the founder of the hedge fund Access International Advisors, René-Thierry Villauchet, whom Markopolos claimed warned him that Madoff was a fraud, committed suicide.

In 2011, the SEC announced a whistleblower program - insiders who are willing to tell it about irregularities in the companies for which they work. But the first people to contact her were not whistleblowers, but representatives of large public companies. In December 2011 alone, SEC management held more than 10 such meetings. Mary Shapiro, then chair of the SEC, met with representatives from Apache, Halliburton, United Health, Best Buy, McDonald's, Johnson & Johnson, Pfizer and Marathon Oil.

Markopolos also saw the new program as an opportunity for his investigations. Back in 2011, he began to suspect that large custodian banks were forcing clients to overpay for currency transactions. With these suspicions, he came to a friend who previously worked at State Street, and he confirmed his suspicions: “No one checks currency transactions.”

Then Markopolos began to look for confirmation of this from bank employees. He persuaded Seurat, Gagne and Wilson to cooperate with him, hired lawyers and established a partnership in Delaware so that the names of his informants would not become known ahead of time.

In 2015, the SEC made 150 decisions on penalties for companies based on information received from insider whistleblowers. But only in eight cases was a reward paid - informants receive money if the fine exceeds $1 million. And this does not happen quickly: having received an application from an informant for a reward, the SEC can make him wait for several months, or even more than a year.