Several news sources have reported on a proposal by the Obama Administration to create a monetary reward for whistleblowers who help the Securities and Exchange Commission (SEC). The Money Times reports that under current law, the SEC has the authority to reward individuals who provide tip-offs on insider-trading violations. However, this new bill will allow the SEC to set up a fund using the fines and penalties collected from enforcement actions and would reward whistleblowers from this fund. The bill is called the Investor Protection Act of 2009.
SEC Chairman Mary Schapiro stated, "These measures will help reduce the likelihood of investor fraud and facilitate SEC action against bad actors involved in securities laws violations." The same bill would increase the authority of the SEC to prohibit compensation plans that interfere with an employee's fiduciary duties. The SEC would have the authority prohibit agents from advising clients when they have a conflict of interest, and could bar violators from working in the industry.
"It provides the SEC with a tool that it needs to ensure that such side payments or sales practices or conflicts of interest do not, in fact, interfere with investor interests," Michael Barr, the U.S. Treasury's assistant secretary for financial institutions, told Reuters. Reuters adds that the bill would prohibit cold calling for new customers.
The RiskMetrics Group reports that the bill would also restrict language that requires investors to use binding mandatory arbitration to resolve disputes.
This blog entry was written with assistance from intern Evan Mascagni.