Better Bounty Hunting

Abstract

The SEC’s new whistleblower bounty program has provoked significant controversy. That controversy has centered on the failure of the implementing rules to make internal reporting through corporate compliance departments a prerequisite to recovery. This Article approaches the new program with a broader lens, examining its impact on the longstanding debate over fraud-on-the-market (FOTM) class actions. The Article demonstrates how the bounty program, if successful, will replicate the fraud deterrence benefits of FOTM class actions while simultaneously increasing the costs of such suits — rendering them a pointless yet expensive redundancy. If instead the SEC proves incapable of effectively administering the bounty program, the Article shows how amending it to include a qui tam provision for Rule 10b-5 violations would offer several advantages over retaining FOTM class actions. Either way, the bounty program has important and previously unrecognized implications that policymakers should not ignore.