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Holder to Propose Bigger Rewards for Wall Street Whistleblowers
U.S. Attorney General to Also Seek More FBI Hires to Probe Wall Street

By Devlin Barrett
Updated Sept. 17, 2014 12:43 p.m. ET
http://online.wsj.com/articles/attorney-general-holder-to-propose-big-new-rewards-for-wall-street-whistleblowers-1410957241

The Obama administration is pushing for a new law to increase potential cash payouts to whistleblowers who provide evidence of crimes on Wall Street, according to excerpts of a speech Attorney General Eric Holder will give Wednesday.

Mr. Holder is expected to announce the Justice Department proposal Wednesday afternoon at a speech at the New York University School of Law.

In the speech, Mr. Holder is expected to give his most extensive remarks in more than a year on the subject of white-collar crime, according to officials. His tenure as attorney general has been marked by criticism, particularly from fellow Democrats, that his department didn't aggressively pursue criminal charges against executives whose conduct contributed to the 2008 financial meltdown.

Industry defenders have argued that few charges were filed against executives because crimes weren't committed, and have accused Mr. Holder's Justice Department of unfairly demonizing Wall Street.

"The buck needs to stop somewhere where corporate misconduct is concerned,'' Mr. Holder said in excerpts of the speech provided by the Justice Department. "We ought to consider this further, and modify our laws where appropriate.''

To help Washington stop financial crimes, Mr. Holder will urge Congress to allow bigger whistleblower rewards under the 1989 Financial Institutions Reform, Recovery and Enforcement Act, called Firrea, according to excerpts from the speech. Current law caps any Firrea whistleblower payment at $1.6 million.

Increasing the size of whistleblower rewards "could significantly improve the Justice Department's ability to gather evidence of wrongdoing while complex financial crimes are still in progress — making it easier to complete investigations and to stop misconduct before it becomes so widespread that it foments the next crisis,'' Mr. Holder said.

In the world of big Wall Street bonuses and salaries, Mr. Holder is expected to say the current $1.6 million reward cap isn't a big enough carrot to prompt individuals to step forward with evidence of wrongdoing. To get the best evidence of Wall Street misconduct, prosecutors need to offer bigger whistleblower rewards to generate better witnesses, he will say.

In the excerpts, Holder also suggests the Firrea whistleblower provision should look more like the False Claims Act, a law that aims to sniff out fraud against the government by offering as much as 25% or 30% of the amount recovered. The 2010 Dodd-Frank Act gave the Securities and Exchange Commission a similar provision that makes possible a reward of up to 30% of a successful settlement amount. That provision has come under fire from some lawmakers, who have warned it could prompt people to falsely accuse corporations of wrongdoing in the pursuit of a payout.

In the past year, Firrea investigations were used to strike record-setting settlements with J.P. Morgan Chase, Citigroup Inc. and Bank of America Corp. for billions of dollars. If those cases had been eligible for rewards in the same range as the SEC or the False Claims Act, individuals could, in theory, have received hundreds of millions of dollars.

If such a law were already in place, one whistleblower could likely stand to make a fortune.

When the government filed suit against Bank of America over a mortgage program called the "high speed swim lane,'' nicknamed "The Hustle," U.S. District Court Judge Jed Rakoff in New York dismissed a claim brought under the False Claims Act. That meant the whistleblower in that case is eligible for at most $1.6 million, instead of tens or even hundreds of millions of dollars more.

In the speech, Mr. Holder also will signal publicly for the first time the likely filing of criminal charges in the coming months for new financial fraud cases.

"We have investigations open right now that are focused on the conduct of individuals at specific financial institutions,'' Mr. Holder said in the excerpts. "We are making good progress in these cases, which involve conduct that has undermined the integrity of our markets, and we hope to bring charges in the coming months.''

The Wall Street Journal reported earlier this week that prosecutors are preparing to seek criminal charges against traders in connection with alleged fraud in the foreign currency markets. People close to the investigation said the Federal Bureau of Investigation had secretly "flipped'' a number of bankers into becoming secret informants who continued to work at their respective banks, gathering evidence against colleagues.

The attorney general will also use the speech to call for more agents to be hired at the FBI to investigate white-collar crime, according to the excerpts.

The excerpts show Mr. Holder also will emphasize the importance of charging individuals—and not just fining corporations—as a means of deterring misdeeds on Wall Street.

While the speech aims to spell out the attorney general's views of what must be done to better pursue misconduct on Wall Street, it is unlikely he will remain in the post long enough to try to accomplish the changes he is proposing. He has signaled he may step down from the job near the end of the year, and any proposal to change Firrea or to achieve significant new hiring at the FBI isn't likely to happen that quickly.

Write to Devlin Barrett at [e-mail]

http://online.wsj.com/articles/attorney-general-holder-to-propose-big-new-rewards-for-wall-street-whistleblowers-1410957241