Wednesday, October 4, 2023
  • Login
CEO North America
  • Home
  • News
    • Business
    • Entrepreneur
    • Industry
    • Innovation
    • Management & Leadership
  • CEO Interviews
  • Opinion
  • Technology
  • Environment
  • CEO Life
    • Art & Culture
    • Food
    • Health
    • Travel
No Result
View All Result
  • Home
  • News
    • Business
    • Entrepreneur
    • Industry
    • Innovation
    • Management & Leadership
  • CEO Interviews
  • Opinion
  • Technology
  • Environment
  • CEO Life
    • Art & Culture
    • Food
    • Health
    • Travel
No Result
View All Result
CEO North America
No Result
View All Result

Do Whistleblowing Laws Work?

in Opinion
Do whistleblowing laws work?
Share on LinkedinShare on WhatsApp

Over a period of several years, the Brazilian unit of medical-devices maker Zimmer Biomet Holdings ran a massive kickback scheme, according to the Securities and Exchange Commission, which in 2017 levied a $30 million penalty against the Indiana-based company. The wrongdoing reportedly came to light when a Brazilian former orthopedic surgeon provided an anonymous tip to the company and then to the SEC. That won the whistleblower a $4.5 million reward from the US regulatory agency.

The bounty was authorized by the 2010 Dodd-Frank Act, which offers such whistleblowers 10–30 percent of cash funds collected from enforcement actions that top $1 million. Some critics question whether this provision is a good idea. A Bloomberg investigation recently found that the Dodd-Frank whistleblower program “often ignores its own rules, shields much of its work from the public, and has been a financial boon for law firms that hired former agency officials.”

But the program does effectively deter financial fraud, according to Chicago Booth’s Philip G. Berger and City University of New York’s Heemin Lee (a graduate of Booth’s PhD Program). Their research finds that the Dodd-Frank whistleblower provision has reduced the likelihood of corporate financial fraud by 12–22 percent, depending on how the calculations are done, without significantly affecting audit fees.

Whistleblower laws have a long history. In 1863, when Civil War profiteers were effectively robbing the public purse, the US Congress pushed through the False Claims Act, offering rewards to whistleblowers. Over time, lawmakers have broadened the application of the bounty incentive—and thus increased the number of people coming to regulators with allegations of wrongdoing.

In the first 10 years of the Dodd-Frank whistleblower program, the number of tips to the Securities and Exchange Commission rose steadily to more than 52,000, the researchers report, citing the SEC’s 2021 annual report to Congress. The SEC has collected almost $5 billion in sanctions and handed out more than $1.1 billion in bounties to 214 whistleblowers. But those data don’t really prove whether the program provides a deterrent, and “studying detected fraud does not tell us how much undetected fraud is occurring,” the researchers observe.

Because detected fraud could represent just a fraction of the greater problem, Berger and Lee focus instead on an indicator of the probability of fraud known as the F-score, developed in 2011 by University of Southern California’s Patricia M. Dechow and her coresearchers. Berger and Lee argue that the measure provides a reasonable approximation of underlying fraud. The F-score reflects financial-statement data showing accrual quality, business performance, and external financing measures. Higher scores signal a greater probability of accounting misstatements.

The other big research challenge was coming up with a before-and-after comparison for businesses likely to be affected by Dodd-Frank. Berger and Lee used false-claims laws, passed in 17 states before Dodd-Frank, which reward whistleblowers who provide evidence of securities fraud by companies whose stocks are part of state pension-fund portfolios. (In 1987 California passed a false claims act with a whistleblower provision, and others eventually followed.) These state laws incentivized companies to tighten up their accounting and take anti-fraud measures prior to the existence of the federal program, thus presenting a good opportunity for comparison with companies for which Dodd-Frank was their first exposure to whistleblower liability, the researchers argue.

When they analyzed the financial reports of more than 1,800 companies from 2008 to 2014 (before and after the passage of Dodd-Frank), they find that companies subject to the state-level laws saw F-scores decline by 12 percent between 2008 and 2010. The research suggests that the drop in the probability of fraud resulted from companies being exposed to a state program during this time period, either because of a newly implemented law or because a state pension plan invested in the companies. Businesses in the group that hadn’t had to worry about state whistleblower laws lowered their F-scores by even more—up to 22 percent—once Dodd-Frank went into effect, the researchers find.

Berger and Lee note that little has been known about the effectiveness of Dodd-Frank’s whistleblowing provision, and their work is the first to link such legislation to the probability of deterring corporate fraud.

“We contribute to the policy debate around the bounty model of whistleblowing by providing one crucial piece of evidence for the debate (quantification of the fraud reduction benefit),” Berger and Lee write. The findings suggest that whistleblower programs are effective in “motivating managers to prevent and avoid fraud,” they conclude.

Courtesy Chicago Booth Review By Bob Simison

Article Available here

Tags: Chicago BoothFraud preventionWhistleblower

Related Posts

Beyoncé to revitalize slow december box office
Opinion

Beyoncé to revitalize slow December box office

Iphone 15 bugs keep heating up
Opinion

iPhone 15 bugs keep heating up

Diamond prices plunge following consumers’ changing spending habits
Opinion

Diamond prices plunge following consumers’ changing spending habits

Orange juice prices climb to new high
Opinion

Orange juice prices climb to new high

Fast fashion’s sustainable resale ambitions are falling flat
Opinion

Fast fashion’s sustainable resale ambitions are falling flat

Consumers still spending on in-demand items
Opinion

Consumers still spending on in-demand items

Walmart sets sights on pet industry
Opinion

Walmart sets sights on pet industry

Tech ipo gains slump showcases silicon valley’s overvaluations
Opinion

Tech IPO gains slump showcases Silicon Valley’s overvaluations

Anheuser-busch ends its traditional clipping of clydesdale tails
Opinion

Anheuser-Busch ends its traditional clipping of Clydesdale tails

Crayola shifts toward flower sales
Opinion

Crayola shifts toward flower sales

No Result
View All Result

Recent Posts

  • Chipotle tests robot assembly line
  • Blistering summer changes Americans’ opinions on climate change
  • Intel to launch IPO for Programmable Solutions Group
  • Beyoncé to revitalize slow December box office
  • US car sales climb in Q3

Recent Comments

  • Juul Unveils Cutting-Edge Vaping Tech: Navigating FDA Uncertainties – iStreetPark Blog on Juul hopes FDA won’t ban its new high-tech vape
  • CEO North America, August - September 2023 - CEO North America on Interviews – CEO North America, October – November 2022
  • CEO North America, August - September 2023 - CEO North America on CEO North America, December 2022 – January 2023
  • CEO North America, August - September 2023 - CEO North America on Why Tech Companies Are Moving to Texas and Florida
  • CEO North America, August - September 2023 - CEO North America on CEO North America, February 2023 – March 2023

Archives

Categories

  • Art & Culture
  • Business
  • CEO Interviews
  • CEO Life
  • Editor´s Choice
  • Entrepreneur
  • Environment
  • Food
  • Health
  • Highlights
  • Industry
  • Innovation
  • Issues
  • Management & Leadership
  • News
  • Opinion
  • PrimeZone
  • Printed Version
  • Technology
  • Travel
  • Uncategorized

Meta

  • Log in
  • Entries feed
  • Comments feed
  • WordPress.org

  • CONTACT
  • GENERAL ENQUIRIES
  • ADVERTISING
  • MEDIA KIT
  • DIRECTORY
  • TERMS AND CONDITIONS

Editorials –
stuart.james@ceo-na.com

Advertising –
advertising@ceo-na.com

NEW YORK

110 Wall St.,
3rd Floor
New York, NY.
10005
USA
+1 212 432 5800

 

MEXICO CITY

Paseo de la Reforma 296,
Floor 38
Mexico City
06600
MEXICO

HOUSTON

1201 Fannin St.
Suite 262
Houston, TX
77002
USA

  • CONTACT
  • GENERAL ENQUIRIES
  • ADVERTISING
  • MEDIA KIT
  • DIRECTORY
  • TERMS AND CONDITIONS

Editorials –
stuart.james@ceo-na.com

Advertising –
advertising@ceo-na.com

NEW YORK

110 Wall St.,
3rd Floor
New York, NY.
10005
USA
+1 212 432 5800

HOUSTON

1201 Fannin St.
Suite 262
Houston, TX
77002
USA

MEXICO CITY

Paseo de la Reforma 296,
Floor 38
Mexico City
06600
MEXICO

CEO North America © 2022 - Sitemap

No Result
View All Result
  • Home
  • News
    • Business
    • Entrepreneur
    • Industry
    • Innovation
    • Management & Leadership
  • CEO Interviews
  • Opinion
  • Technology
  • Environment
  • CEO Life
    • Art & Culture
    • Food
    • Health
    • Travel

© 2023 JNews - Premium WordPress news & magazine theme by Jegtheme.

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In