A win-win replacement for Wall Street bonuses

| March 1, 2012 | 3 Comments

There’s a fantastic article on Bloomberg about Wall Streeters crying over their cut pay. Hear the strains of the world’s tiniest violins, as grown men whine about not being able to buy $1.5 million houses and missing out on Mardi Gras.

Wall Street is really down in the dumps these days. When you work in an industry where your worth is directly measured in dollars, then earning less will mess you up in all kinds of ways. (Some more pitiful examples here.) But there’s a solution to all this that’s right under our noses.

New rules under Dodd-Frank have increased financial incentives for whistleblowers. Now anyone who gives the SEC “original information” on their employer’s wrongdoing can receive 10% to 30% of any monetary penalties over $1 million. Skeptical? Don’t be. Just consider the case of Sherry Hunt.

Sherry Hunt worked for CitiMortgage, a division of Citigroup. She realized that Citi was defrauding the U.S. Federal Housing Administration by getting taxpayer-subsidized insurance on mortgages that were actually ineligible for the FHA program. She filed a federal complaint against the company last year and, just this month, the bank agreed to pay $158.3 million to settle the civil complaint. (Note: Citi made $1.16 billion, or more than 7 times this figure, last year.) How much will Hunt receive? A whopping $31.7 million. 

Wall Streeters should follow Hunt’s example and  jump on the whistleblowing gravy train. This could be a win-win solution.

First off, Wall Streeters get more money in their pocket. A pay-out like Mrs. Hunt’s would be AMAZING for a banker at, say, Morgan Stanley, whose cash bonuses were recently capped at $125,000 for last year’s performance. Secondly, the Feds will have more and better ammunition to go after the cases of malfeasance. As John Savarese writes for Harvard Law School, SEC Enforcement Director Robert Khuzami has already noted “the overall quality and extent of documentation supporting the tips the SEC is now receiving has improved”. Fantastic! (Now, if only the Feds could see their way to criminal charges, not just civil penalties.) Third, turning state’s evidence is a much better outcome than becoming the scapegoat. Let’s face it, at the end of the day any bank caught in wrongdoing will not hesitate to leave its employees twisting in the wind. (You can ask Jerome Kerviel, who used to work for French bank Societe Generale, all about this.)

Last but not least, this is a chance for Wall Streeters to begin repaying their debt to society. That is, if they care about that sort of thing. If not, well then, just do it for the money.

“Great!” I hear bankers around the world saying right now. “Where do we start?”

Here’s the SEC whistleblowing website. As for which case of wrongdoing to start with, how about this one?

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Category: Banking