The Securities and Exchange Commission (SEC), the US financial markets authority, announced on 19 May 2021 that it had paid more than $28 million to a whistleblower who, in the words of the release, “helped” it and another federal agency in prosecuting a company for financial violations (1). Since the Dodd-Frank Act, passed in 2010, whistleblowers can receive a monetary reward if they “voluntarily provide the Commission with original information about a violation of the securities laws that leads to the successful enforcement of an action brought by the Commission that results in monetary sanctions exceeding $1,000,000” (2). While this remuneration does not preclude a whistleblower from acting “disinterestedly and in good faith,” as required by French law (3), it does raise moral questions. In this article, we look at the construction of moral judgment in such a case.


1. Chance and cooperation

Is the whistleblower’s intention self-interested, with his or her goal being primarily to collect a reward, or disinterested, with the whistleblower’s primary motivation being the defence of the public interest?

This question was raised by the SEC in 2018, six years after the Dodd-Frank Act came into force. A limit on the amount of whistleblower rewards was considered at the time “after an $83 million award in March to three tipsters – the largest payday in the history of the SEC’s whistleblower programme—raised concerns that the jackpots may be getting ‘too large’” (4).

That whistleblower rewards can be described as a “jackpot” is surprising. For a jackpot is, “in mechanical games of chance, [a] winning combination that triggers a mechanism that gives the player all the money accumulated in the machine” (5). However, the financial rewards received by whistleblowers are not due to chance. They are literally awards, i.e. “benefits (material, moral) granted in recognition of a service or meritorious act” (6), which are, in this case, paid out following an elaborate examination procedure (7).

The word “jackpot” was certainly used with a form of hyperbolic irony. It is true that abuses in the use of the procedure had been noted after a few years of operation of the programme (8). But some descriptions of the US financial whistleblower law include phrases such as, in a French newspaper: “Commission d’attribution des gains” (which certainly refers to the SEC’s “Claims Review Staff”, but which literally means “Earnings or Winnings Attribution Commission”) which may, almost subliminally, direct moral judgement against the size of the rewards paid, or even against the principle of financial rewards itself (9).

Some descriptions go in the opposite direction. They establish a causal link between, on the one hand, the contribution – or help, a word used for example in this sentence from the SEC: “$22 million reward for a company whistleblower who helped uncover a fraud” (10) – made by a whistleblower, and, on the other hand, his merit, which entitles him to a reward. This is found, for example, in this SEC text:

“As demonstrated by the awards made this fiscal year, meritorious whistleblowers have, among other things, helped the Commission by alerting the agency to widespread, multi-year securities violations, and supplying information and documentation of violations that impacted retail customers” (11).

These descriptions refer to whistleblowers as participants in a system of cooperation. Such a system implies contributions from the cooperators, as well as corresponding rewards. Therefore, the message of these descriptions suggests that it is natural for whistleblowers to be paid as cooperators.


2. Deontological and utilitarian perspectives

How can the observer, caught between these two opposing directions, arrive at a justified moral judgment?

One way is to adopt a normative moral perspective. For example, a deontologist, i.e. a proponent of a morality of intention, would consider that only purely disinterested whistleblowing is moral. A utilitarian, on the other hand, would ignore the intention prior to the action and only consider the practical consequences of whistleblowing. He would readily adopt the proposition that “if there had been no reward, this person would not have revealed anything,” and would judge the whistleblower’s reward as moral.

Naturally, the deontologist and utilitarian would look at the conditions of whistleblowing before applying their standard of judgement. These conditions include first of all, the risk taken by the whistleblower. The subject was commented on by a member of the SEC in relation to the hypothesis, considered in 2018, of capping remuneration paid:

“Whistleblowers are, in the parlance of economics, risk-averse individuals, and we’re asking them to put their livelihood on the line to help us enforce the law. Adding uncertainty to that process risks that would-be whistleblowers will stay quiet” (12).

and by former chief of the SEC’s Office of the Whistleblower between 2011 and 2016:

“Whistleblowers don’t like uncertainty. They need some idea of the ground rules before coming forward” (13).

The “ground rules” are the second element of the whistleblowing conditions. Whistleblower reward has a procedural dimension, in the sense of “procedural law.” It is defined by a set of legal rules and procedures approved by the US Congress (14). Its amount depends on the level of the offence, the importance of the whistleblower’s contribution and his possible involvement in the commission of the offence.


3. Rule utilitarianism

A rule utilitarian might intervene here to emphasise that the moral judgement about whistleblower rewards depends on the utility of the system of rules that makes it possible. According to this perspective, if this system of rules produces better general welfare consequences than any other system of rules that allows public authorities to learn of violations of the law, then it should be retained. After doing the necessary calculations, the rule utilitarian might thus come to the conclusion that the SEC programme maximises the general welfare and that it is therefore morally legitimate to pay whistleblowers.

This perspective allows the observer to take into account the whistleblower’s intention in forming his or her moral judgment. This is not the intention in the mind of the individual before he or she decides to turn to the SEC to blow the whistle. Rather, it is a belief that is formed during the course of the SEC staff’s review of the case.

According to this argument, the rules to which whistleblowers must adhere play a role in their initial deliberation (the deliberation that leads them to go to the SEC) and shape their mindset. Presumably, whistleblowers going through the SEC evaluation process represent themselves, or eventually represent themselves, as cooperating with a public authority. They understand that they are playing a public role. They realise that their financial reward is not the result of their skill or expediency, but of their merit. If one of their friends says, “You hit the jackpot!” they reply with a pout of annoyance: “You haven’t understood anything…”

The argument may seem idyllic. As the French newspaper Les Echos pointed out in 2018, the SEC programme could “industrialise” and lead to the intervention of experts, such as lawyers, whose advice would make whistleblowers think of their own interests first (15).

But the very existence of established rules has a potential effect on whistleblowers’ state of mind in terms of receiving a monetary reward. And the moral judgement of the observer would take this into account. He would consider the potential effect of these rules on their state of mind, especially in the way these rules lead them to conceive their own role. And he might conclude that, all things considered, the principle of whistleblower reward has genuine moral value.

Alain Anquetil

(1) “Whistleblower program,” SEC website.

(2) See Implementation of the Whistleblower Provisions of Section 21F of the Securities Exchange Act of 1934, 25 May 2011.

(3) Article 6 of the French loi n° 2016-1691 du 9 décembre 2016 on transparency, the fight against corruption and the modernisation of economic life stipulates that “a whistleblower is an individual who discloses or reports, in a disinterested manner and in good faith, a crime or an offence a serious and manifest violation of an international commitment regularly ratified or approved by France, of a unilateral act of an international organisation taken on the basis of such a commitment, of the law or of regulations, or of a serious threat or harm to the general interest, of which he or she has personal knowledge.” See also my article “What is the meaning of gratitude to whistleblowers?,” 2 October 2019.

(4) “SEC proposes to limit whistleblower awards,” Marketwatch, 28 June 2018. I put italics.

(5) A. Rey (ed.), Dictionnaire historique de la langue française Le Robert, Paris, Le Robert, 2010.

(6) Ibid.

(7) See the 2016 Annual report to Congress on the Dodd-Frank whistleblower program, SEC, 15 November 2016, and “Whistleblowers awards over $900 million for tips resulting in enforcement actions,” SEC website.

(8) Picking up on a Wall Street Journal investigation published in December 2018 (“Bernie Madoff’s legacy: Whistleblower Inc.”), an article in the French newspaper Les Echos noted that “individuals sometimes repeatedly submit meaningless information that slows down the entire system. One of them sent 143 tips, none of which were relevant, before being barred from any contact with the SEC” (“La SEC pourrait réduire les récompenses des lanceurs d’alerte,” Les Echos, 14 December 2018.)

However, as of 2018, the Office of the Whistleblower has a procedure for dealing with improper referrals: “The Whistleblower Rules include tools intended to deter frivolous claims, which drain resources and slow down the review process for meritorious claims, including providing the Commission with the authority to permanently bar an individual from participation in the whistleblower program if he or she submits three or more award claims that the Commission finds to be frivolous. Frivolous claims can substantially complicate and delay the award process.” (2020 Annual Report to Congress. Whistleblower Program, section “Whistleblowers file claims”).

(9) The expression is used in an article in Les Echos of 30 September 2020: “Etats-Unis : le gendarme des marchés récompense son centième lanceur d’alerte.”

(10) “$22 million whistleblower award for company insider who helped uncover fraud,” SEC website, 30 August 2016.

(11) 2018 Annual report to Congress on the Dodd-Frank whistleblower program, SEC, 14 November 2018.

(12) “SEC proposes to limit whistleblower awards” op. cit.

(13) “Bernie Madoff’s legacy: Whistleblower Inc.” op. cit.

(14) See 2020 Annual report to Congress. Whistleblower program, section “Overview of award process.”

(15) “The promise of lucrative rewards has attracted an army of lawyers and other experts whose business it is to identify potential informants. They have given rise to a real industry” (La SEC pourrait réduire les récompenses des lanceurs d’alerte,” op. cit.)

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