Get Ready for More Whistleblowers in the Financial Advice Sector

Investment News
August 30, 2016

Jordan A. Thomas says advisory firms and brokerages can become whistleblower targets

As federal and state securities regulators rely more on firm insiders to uncover wrongdoing, the investment advice sector may find itself more vulnerable to whistleblowing. Earlier this month, Indiana announced its first whistleblower award, giving $95,000 to a former JP Morgan official who helped the state's regulators make an advice-related case against the firm that resulted in a $950,000 settlement. The state is only one of two that have whistleblower laws.

In this case, the informant showed how the firm failed to make proper disclosures to clients about proprietary funds in discretionary accounts. In a statement, the state said the “whistleblower exposed JP Morgan for putting its interests before its clients.”

Jordan Thomas, a partner at Labaton Sucharow, said larger advisory firms and brokerages could become whistleblower targets.

That's where “it's more probable you're going to see an SEC whistleblower mindset,” said Thomas, who helped establish the SEC program when he worked there as an assistant enforcement director. He also represented the whistleblower in a 2015 SEC case against JP Morgan that was similar to Indiana's enforcement action.

He's glad to see whistleblowing advance at the state level. “It's encouraging that Indiana is taking leadership in this area,” Thomas said.