Whistleblowers Finger Bad Actors in the Financial Markets and Get Paid Millions by the SEC for Doing So
Back in 1970, in a seminal paper titled The Market for Lemons, George Akerlof highlighted how vitally important accurate information was to the effective functioning of the financial markets. It stands to reason: if the information reported by firms cannot be trusted, few would want to invest. The obfuscation and fraud practiced at Enron, WorldCom and other entities in the 1990s and disguised under a façade of positive earnings reports provided devastating proof, however, that the markets had not developed effective mechanisms for tackling information asymmetry, which occurs when one party to a contract knows a great deal more than…