SEC looking for whistleblowers to help stop fraud
Apr 1st 2009 1:45PM
Updated Dec 4th 2009 1:25PM
Reeling from the embarrassments of the Madoff and Stanford scandals, new SEC Chairman Mary Schapiro wants to enlist private-sector third parties to help the SEC expose fraud. Not that she has a choice. The SEC has only 400 staff to examine more than 11,000 investment advisers, meaning only about 10 percent of registered advisers get looked at every three years. She also wants to push for a strong whistle-blower law to help expose fraud.
Shapiro told the Financial Times, "We need to find some way to increase staffing, but beyond that, leverage third parties without abdicating our responsibility." She cites self-regulatory agencies as examples worth imitating -- a topic she knows well given she's the first person to have headed both the Commodity Futures Trading Commission and the Financial Industry Regulatory Authority.
While Shapiro is recognized for building consensus through self-regulating agencies, many wonder if she can truly be the top cop the SEC needs. She assured Sen. Schumer during Senate confirmation hearings that, "The first thing I will do is take the handcuffs off, and get investigations started immediately. There will be no sacred cows."
To that point, one of her first moves after assuming the Chairmanship was to speed up investigators' ability to bring cases. The Financial Times reported that she's considering giving more decision-making power to the new enforcement director, Robert Khuzami, a former federal prosecutor.
Obviously, she's listening to critics who believe she needs tough enforcers to help fix the agency's problems. In addition to the possible change in Khuzami's job description, she wants to strengthen internal training programs and hire employees, including retired FBI agents, with skill sets in forensic accounting, financial analysis and trading.
She also wants to push for a new whistle-blower law. She told FT that, "A well-crafted whistle-blower legislation that allows us to pay people to bring us well-developed fraud cases that ultimately prove successful is another way to leverage third parties without abdicating our responsibility."
While Schapiro sounds as though she's on the right tract, the question remains whether her ideas will be enough to satisfy calls by France, Spain, the Czech Republic and Germany for stricter financial regulation. France is promising to walk out on the G20 submit without promises of stricter financial oversight and Germany is threatening to do the same, according to reports on NPR this morning.
Clearly financial regulation is taking its position at the front and center. Will Mary Schapiro be able to shed her conciliatory nature and be the top cop needed at the SEC who can hold the developed world together? It has all the makings of a good TV cop drama, but with far more than Nielsen ratings at stake.
Lita Epstein has written more than 25 books, including Reading Financial Reports for Dummies and the Complete Idiot's Guide to the Federal Reserve.