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Grassley Presses Schapiro on SEC’s Treatment of Whistle-Blowers

U.S. Securities and Exchange Commission Chairman Mary Schapiro is facing questions from the top Republican on the Senate Judiciary Committee about the agency’s protection of whistle-blowers.

Senator Charles Grassley of Iowa wrote a letter to Schapiro yesterday asking for details about how the SEC handles information provided by informants. The letter follows a report in The Wall Street Journal yesterday that during an investigation of Pipeline Trading Systems LLC an SEC lawyer showed a whistle-blower’s notes to company executives.

The executives were able to identify the whistle-blower, Peter Earle, because they recognized his handwriting, according to the Journal’s story. Earle worked in Pipeline’s trading unit, Milstream Strategy Group, the Journal said.

“Exposing a confidential whistle-blower can lead to employer retribution and chill the environment for future whistle-blowers to come forward,” Grassley said in the letter.

Grassley is asking Schapiro to explain the SEC’s procedures for protecting whistle-blower information and whether the SEC believes handwriting can identify an informant.

SEC spokesman John Nester didn’t comment on Grassley’s letter. In a letter published in the Journal today, George Canellos, the director of the SEC’s New York regional office, said the agency “in no way exposed Peter Earle as a whistle-blower.”

“The SEC made sure to obtain all of the notes of the approximately six Milstream traders and in the SEC’s deposition of Gordon Henderson (the supervisor of Mr. Earle and the other traders), the SEC used other traders’ notes along with those of Mr. Earle,” Canellos wrote. “The use of these traders’ notes - - highly relevant evidence prepared in the ordinary course of their work at Milstream -- in no way revealed whether Mr. Earle or any other trader was or was not cooperating with the SEC.”

The 2010 financial regulatory overhaul requires the SEC to pay awards to whistle-blowers who provide information that results in fines exceeding $1 million. The law prevents employers from retaliating against whistle-blowers.

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