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Ponzi schemers and white-collar criminals beware: The government now has $450 million to give to whistleblowers who rat you out. The Securities and Exchange Commission opened its new whistleblower office last week, offering cash rewards to employees who reveal corporate crimes.

For years, critics have accused the SEC of ignoring tips regarding scammers, including Bernard Madoff, the former NASDAQ exchange chairman who stole billions from investors in a Ponzi scheme that lasted almost 40 years. The whistleblower unit hopefully will prevent such regulatory failures in the future, the SEC says.

“Early and quick law enforcement action is the key to preventing securities fraud and avoiding investor losses, and the whistleblower program gives us the tools to help achieve that goal,” Robert Khuzami, the SEC’s enforcement chief, said in a press release.

Tipsters whose information leads to the successful conviction of corporate scammers and results in more that $1 million in fines can receive up to 30% of those fines from the S.E.C. The money comes from $450 million placed in the Investor Protection Fund.

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Even with that large incentive, the program will still save money for the cash-strapped agency by saving investigators’ time, Sean McKessy, chief of the new office, said in a speech last week at Georgetown University. The agency already has received more high-quality tips in anticipation of the whistleblower office’s formal opening, McKessy said.

The new office has just seven employees. Even looking at the entire SEC, “We are a relatively small agency responsible for regulating more than 35,000 entities—from investment advisers to corporate filers to national exchanges,” McKessy said in his speech. “In fact, our entire operating budget is smaller than the amount that some individual financial firms spend on their IT systems alone.”

Despite the new office’s meager size, and what many critics see as its long-overdue timing, the whistleblower office was the subject of serious controversy over the last year, as corporate lobbyists fought to kill or weaken it. The resistance was led by the U.S. Chamber of Commerce, which argued that the office would hurt corporations’ ability to police themselves.

Specifically, the chamber doesn’t like the fact that whistleblowers are not required to file their complaints with their corporate superiors first, before tipping off the new government regulators.

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“In approving this new whistleblower rule, the SEC has chosen to put trial lawyer profits ahead of effective compliance and corporate governance,” the chamber said in a press release. “This rule will make it harder and slower to detect and stop corporate fraud.”

Not true, McKessy said in his speech. In cases like the Madoff scheme, where the company’s leaders are the ones orchestrating and running the fraud, an employee lodging complaints internally would simply push the scammers to better hide their tricks, making it more difficult for regulators to discover.

“This seems rather apparent to me,” McKessy said. “Rather than undermining or weakening internal compliance programs, I believe the whistleblower program actually should empower internal compliance personnel to advocate for stronger and more transparent internal compliance programs.”

If you work at a financial services company and you see something fishy in your office, you can blow the whistle to the SEC by contacting the new office. Information on how to submit a tip is available here.

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Image: Kate Ter Haar, via Flickr.com

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