I don't think I'm being overly self-righteous to say I'm offended by the lead headline in today's Fund Action: "Fund snitches to be paid by SEC" [sub. req.]. Fund snitches? For people who report illegal or unethical practices? You've got to be kidding.

Unlike the headline, the article itself is well-reported and inoffensive:

The just-signed Dodd-Frank law has turned out to have a little-noticed provision that sets up mutual fund whistleblowers for a payday. The provision protects any fund firm insiders from employer retaliation and offers rewards of up to 30% of Securities and Exchange Commission sanctions to employees who report wrongdoing by their firms. Observers note that Dodd-Frank does what Sarbanes-Oxley failed to do—puts funds squarely in the cross-hairs of beefed up whistleblower provisions and incentivizes whistleblowers to act.

The success of the mutual fund industry rests almost entirely on the trust of investors, built over decades of effective regulation. In recent years, an environment of lax regulation has led to occasional scandals and financial practices (like "pay to play") that threaten to undermine that trust, but it's still there.

Investment management professionals don't talk, think or act like mafia dons. In my experience, they have the highest ethical standards in the financial industry. I would assume that most of them are glad (if disappointed in their colleagues) when shoddy practices are exposed to the light of day, even if it means paying whistleblowers to do so. I doubt very much that many mutual fund executives think of such people as "snitches."