Bloomberg reports:

“Since the arrests (of Rajaratnam and associates) were announced, the SEC has seen an “uptick” in individuals coming forward with information on misconduct, Khuzami said, adding that people trading on confidential information “should be worried.”

Khuzami, 53, said prosecutors will continue using undercover techniques including informants and front businesses to attract wrongdoing and wiretaps to “ferret out” misconduct. The SEC has endorsed legislation that would let the agency pay whistleblowers for information leading to a case.

Khuzami, a former federal prosecutor who joined the agency in March, is reorganizing the division to add front-line investigators, speed inquiries and create specialized units after the agency was faulted for missing Bernard L. Madoff’s Ponzi scheme. He’s also seeking to bolster his attorneys’ powers by gaining greater access to grand-jury evidence and expanding deal-making and cooperation with informants. “

The SEC is also looking “closely” at laws in the 2002 Sarbanes-Oxley Act, which let the SEC punish executives for misconduct at firms even when they aren’t involved in the wrongdoing, he said last month.”

My Comment:

I’m all for busting the bad guys on Wall Street. And RICO laws are the best way to do that because the scams are so extensive. But given that the corruption goes up to the very top, there’s the real risk that the SEC could simply proceed selectively, targeting political enemies or making examples of relatively small players. Selective justice isn’t justice.

I also don’t care for the way informants are being used. When informants are being rewarded and are able to cut deals, what you get is  what you always get when you offer an incentive, more of the activity. We’ll get more informants and more information. How good that information will be is another story. 

When incentives were introduced into intelligence gathering (the outsourcing of information gathering and interrogation to private contractors like Titan and Caci), what did we get? Better information? No. We got torture and abuse.  I’m afraid that’s what we’re going to get with this, as well. The SEC may end up just settling political scores…