(Bloomberg) -- New York’s attorney general wants a state law allowing him to pay and protect whistle-blowers who provide his office with information about securities fraud, similar to the SEC's program rolled out four years ago.

Eric Schneiderman is seeking to build support among New York lawmakers for his proposal, which would allow for rewards if information from whistle-blowers leads to penalties and fines of more than $1 million.

The measure could add to lingering tensions with the SEC, which has tangled with several New York attorneys general over who should take the lead in pursuing some types of financial fraud. If the proposal is adopted and both programs offer similar rewards, whistle-blowers might simply choose which office would deliver the quickest and most effective response.

“This is a very strong endorsement of the SEC’s program, and more cops on the Wall Street beat can only help investors,” said Jordan A. Thomas, a former SEC lawyer who’s now a partner at Labaton Sucharow in New York. “The proposed law will allow the New York attorney general to be more effective and efficient in protecting investors in New York and around the country.”

Schneiderman’s proposal could stall as the legislature turns its attention to negotiating with Governor Andrew Cuomo over his $141.6 billion budget ahead of a March 31 deadline. It will also encounter a Republican-controlled Senate that traditionally sides with business interests.

SPONSORS FOUND

Schneiderman has lined up sponsors but won’t identify them until a bill is formally introduced, said Matt Mittenthal, a spokesman for the attorney general. Even if legislation passes both houses, it would need Cuomo’s backing.

Cuomo and Schneiderman, fellow Democrats, have publicly dueled over the control of funds generated by legal settlements with banks. In his first year in office, Cuomo pushed through legislation that consolidated supervision of the finance and insurance industries under a stronger regulator outside the attorney general’s office.

A program such as the one Schneiderman is proposing would further strengthen the New York attorney general’s office, which already has a powerful tool in the Martin Act to take on Wall Street wrongdoing.
Schneiderman’s move comes amid concern from lawmakers that some companies are deterring whistle-blowers from reporting securities fraud to the SEC. Maxine Waters, a California Democrat, urged the agency in October to be more aggressive in enforcing whistle-blower protections. The agency has in recent weeks sent letters to several companies to determine whether nondisclosure agreements and employment contracts are being used to silence possible informants, the Wall Street Journal reported Wednesday.

STATE STANDARD

“New York has a unique opportunity to set the gold standard for states seeking to expose and hold individuals accountable for financial crimes,” Schneiderman said in a statement Wednesday.

The latest proposal mirrors the SEC’s whistle-blower program, which was expanded under the 2010 Dodd-Frank Act. Previously, the SEC could only pay insider-trading informants. Schneiderman wants to reward whistle-blowers with 10% to 30% of the total fine in cases that bring in at least $1 million, as the SEC now does.

Some whistle-blowers have turned to Schneiderman saying they were frustrated with delays and red tape at the SEC, people with knowledge of the investigations have told Bloomberg News. They asked for anonymity because of the sensitive nature of the cases.

A tip that led to Schneiderman’s June lawsuit against Barclays was first submitted to the SEC, as was another that triggered his investigation of a controversial trading practice at BlackRock Inc., according to the people. In January 2014, BlackRock agreed to end the practice and pay $400,000 to cover the cost of the investigation. The Barclays suit, involving disclosures of practices in its private trading venue, or dark pool, is still pending.

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