SEC May Pay Whistleblowers

The Securities & Exchange Commission may pay whistleblowers in an attempt to overcome its lack of resources and clamp down on financial fraud, according to chairwoman Mary Schapiro.

Speaking at the Society of American Business Writers and Editors' conference in Denver, Colo., Schapiro explained that the SEC will ask Congress for "whistleblower authority" similar to that used by the IRS.

"We need to leverage third parties where we can at the SEC, given our short staffing," she said, explaining that whistleblowers could get financial rewards. "If we can prosecute the case and get a sanction or a fine, then pay the whistleblower the way the IRS does for [cases involving] tax cheats, then I am pretty happy to do that."

Schapiro explained that the agency, which has 3,600 staff members, can receive anything from 750,000 to 1.5 million tips and complaints a year, hence the whistleblower payments.

"It will help us focus on the [cases] where there's the highest probability that there's a really big problem that we can tackle," she said. "My goal is to try to increase the probability that we don't miss the next Bernie Madoff."

The SEC already has a whistleblower payment program in place for insider trading, although this has not been used very successfully, according to Schapiro.

Schapiro admitted that the agency currently has no central database for handling the vast volume of tips and complaints it receives.

"It's not a great picture," she added. "There is no way to mine the data and see that there's a complaint in Boston, in Chicago, and Miami, that, if we put them together, might see the beginning of something really important."