The former head trader at Paradigm Capital Management who was demoted and marginalized after reporting conflicts of interest to the SEC was awarded more than $600,000 Tuesday in the agency’s first enforcement action based on retaliation against a whistleblower.
The SEC last year charged Paradigm and its owner Candace King Weir with retaliation. The firm and Weir together paid $2.2 million to settle the charges.
The whistleblower had reported to the SEC that Weir owned a broker-dealer that did business with Paradigm when trading on behalf of a hedge fund client. The transactions involved “conflicts between the interests of the adviser and the client” that needed to be disclosed to the client.
The whistleblower was Paradigm’s former head trader. Paradigm Capital Management is based in Albany, New York. It also has offices in New York City.
“Paradigm failed to provide effective written disclosure to the hedge fund and did not obtain its consent as required prior to the completion of each principal transaction,” the SEC said last year.
After the whistleblower reported the conflicts to the SEC, “Paradigm immediately engaged in a series of retaliatory actions . . . including removing the whistleblower from the whistleblower’s then-current position, tasking the whistleblower with investigating the very conduct the whistleblower reported to the SEC, changing the whistleblower’s job function, stripping the whistleblower of supervisory responsibilities, and otherwise marginalizing the whistleblower,” the SEC said.
To settle the SEC retaliation case, Paradigm and Weir jointly agreed to disgorge $1.7 million for distribution to current and former investors in the hedge fund client, and pay prejudgment interest of $181,771 and a penalty of $300,000.
Whistleblower awards can range from 10 percent to 30 percent of the money collected in a case with sanctions exceeding $1 million. Since the SEC program started about three years ago, the agency has awarded 17 whistleblowers over $50 million.
The biggest award was $30 million, announced in September last year. The SEC said the whistleblower lived outside the United States.
The previous high for an SEC whistleblower award was $14 million in October 2013.
In a statement Tuesday, Sean McKessy, chief of the SEC’s Office of the Whistleblower, said: “Retaliation against whistleblowers is entirely unacceptable.”
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The SEC’s Securities Exchange Act of 1934 Release No. 74826 and Whistleblower Award Proceeding File No. 2015-4 In the Matter of the Claim for Award in connection with Paradigm Capital Management, Inc. and Candace King Weir (April 28, 2015) are here (pdf).
Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.