Academic

Last week, I blogged a little about the Dodd-Frank provision providing bounties for whistleblowers in securities actions.  In the comments, there is some discussion about the pros and cons of these incentives.  John Carney writes at CNBC of an irony here that is close to my heart:  the juxtaposition of the criminal (or SEC civil) prosecution and private securities litigation.

In an earlier article, I pointed out that not only can prosecutors compel witnesses to testify, they can incentivize them by threatening them with prosecution.  None of the Enron cases, for example, would have gotten started without a few plea bargains in exchange for a reduced sentence.  (Remember Andy Fastow?)  Of course, there is nothing on the civil side that gives plaintiffs any sort of similar weapon.  In fact, plaintiffs can't offer potential witnesses anything, much less anything close to a Get Out of Jail Free card.

But now, the SEC can offer witnesses potentially millions of dollars.  So John Carney reminds us that MIlberg Weiss partners went to jail for compensating witnesses. 

So, why would we think that compensating witnesses in private litigation would induce people to lie, but threatening witnesses with jail time or offering them millions of dollars would induce people to tell the truth?