Committee Accepts Royce Whistleblower and Safety Board Amendments
Washington,
Oct 28 -
Rep. Ed Royce (R-CA), a senior member of the Financial Services Committee, offered two amendments to restructure the SEC during a committee mark-up of H.R. 3817, the Investor Protection Act. Royce's amendments, adopted by the Committee, will improve the ability of the SEC to protect investors. The amendments would establish a separate office within the SEC to enforce whistleblower protections and would create a new office with the SEC called the "Capital Markets Safety Board" to inspect SEC registered institution failures.
"Earlier this year, the Committee heard from Harry Markopolos, an industry whistleblower, who for more than a decade attempted to bring Bernie Madoff's ponzi scheme to the attention of the SEC. Outside of one individual in the SEC's Boston office, Markopolos was alone in his decade long pursuit," said Royce.
The first of two Royce amendments will take a step toward improving the stature of whistleblower complaints within the SEC by establishing a separate office within the Commission to better protect whistleblowers and ensure their concerns are being acted upon by the SEC. According to a recent report, whistleblower tips were responsible for detecting 54% of fraud schemes at public companies whereas external audits (like those conducted by the SEC) accounted for 4% of fraud cases detected.
Royce's second amendment would create a new office within the SEC called the "Capital Markets Safety Board" which would send inspection teams in after an SEC registered institution fails. This Board would diagnose exactly what went wrong and in what sequence that lead to the failure of the institution. The Capital Markets Safety Board would then make this knowledge publicly available on the SEC's website for companies, accountants, and investors use in avoiding these mistakes.
"By establishing a Capital Markets Safety Board, individual investors and regulators will have a better sense of what went wrong and have the opportunity to learn from these past failures." Royce said.
"As Mr. Markopolos alluded to, the case of the Bernie Madoff ponzi scheme provides several useful lessons for the investor public and regulators; such as never allocating more than 20% to any one investment manager, never putting 100% of your eggs in one basket, make sure the investment manager uses an independent third party custodian, etc." Royce said.
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