NZ considers paying financial whistleblowers

Harry Markopolos: Madoff whistleblower
SFO's Simon McArley: scheme worth having a look at

New Zealand may follow the United States' lead and introduce payments to financial whistleblowers.

US fraud investigator Harry Markopolos, in Auckland this week for the Serious Fraud Office's economic crime network conference, was the whistleblower in Bernie Madoff's $US65 billion ponzi scheme – one of the biggest frauds in history.

SFO acting chief executive Simon McArley says New Zealand doesn't have such a scheme but talks with government officials about enacting one here are in the early stages.

"Obviously, the cost is a factor but it definitely seems to be working in the US so it's worth having a look at."

Mr Markopolos told a media conference the US Securities and Exchange Commission launched a whistleblower scheme in August 2011 in response to the Madoff case.

It pays between 10% and 30% of the money recovered for amounts over $US1 million.

That has resulted in about seven or eight complaints per day and one award of $US50,000 has been made, with many more cases being pursued by authorities.

"Tips are coming in from industry and the government is able to obtain smoking-gun emails, marketing documents, transaction records and also the losses of the victims – who the victims are and how much they're losing in some cases to the penny.

"It saves scarce government resources, it saves on thousands of man hours investigating the cases and it gives them a good start to their investigations."

Ponzi fraudsters 'under the radar'

Mr Markopolos says long-term statistics from the US Department of Justice's whistleblower programme show that 20% of the tips turn into successful enforcement action for the government.

"I'm expecting the SEC's results will mirror that."

However, he warns ponzi operators are often off the radar and "barely register" with authorities, with regulators not becoming involved until victims are ripped off.

"By then it's often too late."

Mr McArley says ponzi schemes have been prevalent among the SFO's work in the last 18 months, with at least seven actual and alleged cases involving about $550 milion.

Those include the late Allan Hubbard's Aorangi Securities, David Ross's Ross Asset Management and Jacqueline Bradley's B'On Financial Services.

"Some of them haven't been big frauds. Some of them we've looked at have been extraordinarily big.

"They do have a lot of common attributes to them, usually the lack of external oversight, they're usually marketed on a very close personal relationship, and with some sense or badge of exclusivity."

Mr McArley says tackling serious financial crime will take on elevated importance given the huge demand for capital expected in the next 18 months to two years.

"The capital markets will be under some pressure and it's important we maintain confidence in those markets so that capital's available. And we do that by demonstrating both a robust and unified response to serious crimes in the market."

The SFO is already working jointly on investigations with the Financial Markets Authority. 

The three-day economic crime network conference opened today at Auckland's Viaduct Events Centre and involves delegates from international agencies such as the FBI, the UK Serious Fraud Office, Malaysia's Anti-Corruption Commission and the European Commission Anti-Fraud Office.

dwilliams@nbr.co.nz

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