It is not uncommon for federal regulators to make use of whistle-blowers to help prosecute allegations of securities fraud. In a new twist, some states are looking to use these informants as well.

Are states really using whistle-blowers to find securities fraud violations? A recent piece in the New York Times discussed this practice, noting two states are currently making use of whistle-blowers (Indiana and Utah) and that the North American Securities Administrators Association, a group of state securities regulators, is considering expanding this practice to more states throughout the country.

Why would whistle-blowers be beneficial to states? Essentially, the benefit of a whistle-blower is the ability to identify securities fraud occurring within the state in real time. This not only allows for the ability to stop the activity before further damage is done, but also increases the likelihood that those who have been the victims of fraudulent practices can receive restitution.

What do these programs offer? The details of each program will vary by state. The applicable statutes are generally created by the state legislature, which would determine the exact offerings.

In Indiana, one offering in the state’s program is the provision of anonymity for the person coming forward as a whistle-blower. Another is the potential award of up to 10 percent of any monetary sanctions that are received resulting from information provided by the whistle-blower.

Is the use of whistle-blowers at the state level beneficial? In Utah, the answer appears to be yes. The director of the state’s Division of Securities states that Utah’s whistle-blower program has yielded 15 successful prosecutions since its inception in 2011.