Featured in the Daily Business Review: In Defense of SEC Whistleblower Short Sellers: They Deserve to Have Their Cake and Eat It Too

Securities Whistleblower Attorneys Scott Silver and David Chase discuss in the Daily Business Review how critics that argue that short sellers unfairly benefit from the SEC Whistleblower Program by profiting both from their market positions and from whistleblower rewards when their tips lead to enforcement actions overlook the critical role short sellers play in uncovering financial fraud. Unlike corporate insiders, short sellers conduct extensive independent research, analyzing financial statements, SEC filings, and market trends to identify fraudulent activities. Their work has led to the exposure of major accounting frauds and stock manipulations, strengthening the SEC’s enforcement efforts. Without their contributions, many violations would likely go undetected, weakening investor protection and market integrity.

The growing reliance on short seller whistleblowers is evident, with outsider tipsters receiving an increasing share of SEC whistleblower awards—rising from 1% in 2018 to 38% in 2022. These individuals effectively supplement the SEC’s limited resources, making the financial markets more transparent and accountable. Critics who claim that the program privatizes government functions ignore its effectiveness in incentivizing fraud detection. The SEC Whistleblower Program recognizes that financial rewards drive results, and short sellers, who risk capital and invest significant time in research with no guarantee of success, deserve to be compensated for their efforts. Their dual benefit—market gains and SEC awards—is a natural outcome of capitalism and should not diminish the public good achieved by their work in exposing fraud.

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