Jordan A. Thomas speaks on the first whistleblower award granted to a company outsider

Jordan Thomas, a partner at Labaton Sucharow, said while the SEC has used information from people outside of a company previously—he cited the help the agency received from former securities executive and financial fraud investigator Harry Markopolos to pursue Bernard Madoff—the agency wasn’t issuing awards at that time. Still, he said this latest award marks a “milestone” for the SEC whistleblower award program and is likely to lead to more outsiders coming forward in the future.

After the Madoff fraud was made public, Thomas said many analysts who said they had analyzed the Madoff business and thought it was suspect, “but there were no whistleblower incentives or a way to report anonymously so no one came forward. That is one of the goals of the program–to get people who know things–particularly sophisticated industry players–to speak up.”

Outsider awards are less frequent than those to insiders because, in practice, outside analysts “have to work a little harder” to convince regulators to invest time and money into investigating their case, said Thomas. “If an insider says, ‘Joe is committing a crime,’ they are much more willing to open an investigation” while an analyst working from the outside with public information would have to tell a “compelling story” to get the agency to take action.

“That is something that speaks well for the whistleblower in this case,” said Thomas. “They were able to assemble and analyze information and to convince the SEC to investigate, and they were right.”

"This is the first time that the SEC has acknowledged awarding an outsider for independent analysis that led to a successful enforcement action," Thomas said.