The SEC, which is seeking more authority to pay tipsters, inadequately tracks whistleblowers’ complaints and lacks policies for determining the size of awards, the agency’s watchdog said.
“The current SEC bounty program is not fundamentally well-designed to be successful,” SEC Inspector General H. David Kotz said in a report released Thursday.
The SEC has asked lawmakers to expand its authority by letting the agency give bounties for any tip that results in a monetary sanction exceeding $1 million. The agency now has power to reward tipsters only in insider-trading investigations.
The SEC should improve its bounty-application process and make sure petitions are reviewed in a timely and adequate way, Mr. Kotz said. He also urged the agency to revise its criteria for judging the value of tips and its guidelines for determining the size of awards.
Robert Khuzami, SEC enforcement director, said the agency is centralizing its process for receiving, reviewing and acting on tips. Legislation under consideration by Congress would replace the bounty program, so the agency should incorporate Mr. Kotz’s recommendations in the new system rather than amend the existing one, Mr. Khuzami said.
Chairwoman Mary Schapiro is trying to overhaul how the SEC tracks and investigates tips after former money manager Harry Markopolos tried for years to alert the agency to Bernard Madoff’s Ponzi scheme. Mr. Markopolos’ warnings to the SEC that Mr. Madoff’s reported returns were too good to be true ultimately prompted congressional hearings and an internal SEC investigation.
Mr. Kotz credited the SEC for taking steps to fix its bounty program, noting that the agency has sought input from the IRS and the Department of Justice.