Feds might offer bounties for market miscreants

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By David R. Sands

The nation's top market cop is looking for a few good snitches.

Securities and Exchange Commission Chairman Mary L. Schapiro told a congressional panel Wednesday that her agency is considering offering cash bounties for the first time to private-sector whistleblowers who help expose financial wrongdoing.

The plan was revealed as disgraced financier Bernard Madoff was preparing to plead guilty to 11 felony counts in a New York courtroom Thursday in connection with a massive Ponzi scheme that went undetected by the SEC and other regulators for more than a decade. Prosecutors this week raised their estimate of the size of the fraud to more than $64 billion.

Mrs. Schapiro told a House Appropriations subcommittee that she is considering asking for the power to offer rewards to whistleblowers in securities fraud cases similar to the bounties given to those who reveal insider-trading violations.

"Right now, the main reward for being a whistleblower is the good feeling you get of having done something important, because we don't have the authority to pay," she said, noting that the Internal Revenue Service and other federal agencies already have well-defined reward programs.

"Whistleblowers tend to do a lot of the work for you, hand you something that's pretty fully baked," Mrs. Schapiro said. "It would enable us to run with that kind of information and pursue cases in a much more aggressive way."

Noting that the SEC has about 400 investigators to monitor more than 11,000 investment advisers like Mr. Madoff, she said, "We have to leverage third parties to do our job."

Mrs. Schapiro, who was confirmed in January, agreed with lawmakers that the SEC's reputation had taken a major hit because of the Madoff case. Congressional anger boiled over last month when it was revealed that Boston investor Harry Markopolos had supplied SEC officials with a detailed analysis of Mr. Madoff's fraudulent empire in 2005 but the agency failed to act.

The agency's top enforcement officer resigned in the wake of those revelations, and the SEC inspector general began an internal investigation into how the Madoff fraud went undetected for so long.

Mrs. Schapiro also confirmed reports that the SEC is weighing changes to two rules that critics say have accelerated the global stock market decline and exacerbated losses and capital problems at the nation's banks.