SEC to Investors: Fear Your Neighbors, Fear Your Friends, Fear Your Kids

It's difficult to think of a bunch of more sleazy government operators than the group at the Securities and Exchange Commission. According to FT:

New US whistleblowing incentives within the Dodd-Frank financial reform act – that could net informants multimillion dollar pay-outs – are likely to generate a surge in allegations against US-listed companies and Wall Street banks, lawyers say.

The Securities and Exchange Commission is expecting a sharp increase in tip-offs from senior employees and third parties prompted by potential seven-figure bounties.

“The scale of the awards reflects the high quality of whistleblower we hope to get – people within a company, broker or other regulated firm that we might not have heard from before,” Stephen Cohen, an SEC official, told the Financial Times. “We’re expecting a tremendous response."

The substantive new financial incentives for securities fraud whistleblowers are part of the sweeping Wall Street reforms that became law last month.

People who provide original information that leads to a successful SEC enforcement action will now be entitled to 10 per cent to 30 per cent of any sanction imposed over $1m – including a share of the proceeds from any related regulatory action or shareholders’ lawsuit

This, I remind you, is the same SEC that snuck into the Dodd-Frank Bill a clause that exempts it from the Freedom of Information Act.

The same SEC that is protecting the name of the former high level SEC attorney who spent ALL Day surfing porn sites at tax payer expense.

Then, of course, there is the absurdity of most insider trading charges anyway (See Tibor Machan What is Morally Right With Insider Trading [PDF])

On top of all this, the idea of paying informants (especially for a non-crime), mimics the old Soviet Union, where it was never clear who was an informant for the state. It could have been your neighbor, a co-worker or your best friend. In the old Soviet Union, you always had to censor yourself for fear of an informant who might misinterpret what you said in front of him. A country of informants is a country that is fast losing its freedom. There are few things as suffocating of life as a country full of informants. The SEC step , through the Dodd-Frank Bill, of aggressive informant seeking takes us one more step down the road toward the all watchful state. It's pure evil.