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SEC Whistleblower Short Sellers
Recently, criticism has been leveled against the practice of the SEC awarding bounties to short sellers who potentially financially benefit twice from blowing the whistle and reporting violations of the federal securities laws to the SEC under its whistleblower program. Under this "double dip" scenario, short sellers profit not only from successfully covering their short positions on the company they have bet against, but also from receiving anywhere between 10% to 30% of the financial payments made by that same company to the SEC on a judgment entered against it of at least $1 million.
The position that short sellers should be denied the benefits of their critically important whistleblowing efforts is short-sighted and contrary to the notions of our capitalistic markets. Moreover, it will serve only to disincentive a vital constituency of the SEC Whistleblower Program, which, in turn, will degrade the effectiveness of the SEC's enforcement program.
Short sellers conduct their analysis of suspect companies from the "outside" through the review and dissection of publicly available information, including company's financial statements, SEC filings, industry trends and engaging in sophisticated market analyses. Unlike traditional "insiders" who have personal knowledge and, in some cases, documentary evidence of the illegal securities conduct, short sellers must invest substantial time, due diligence, human resources and financial capital in uncovering and identifying red flags that strongly suggest that publicly traded companies are engaged in ongoing federal securities laws violations. Quite often, short sellers are successful in uncovering massive accounting frauds and stock manipulations, the bread and butter of the SEC's enforcement program.
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