Wednesday, 17 September 2014
Last updated 14 hours ago
Jun 17 2014 | 9:02am ET
A hedge fund has become the first firm sanctioned by the Securities and Exchange Commission for retaliating against a whistleblower.
Albany, N.Y.-based Paradigm Capital Management settled those allegations and those stemming from the whistleblower’s report to the SEC, that it had engaged in prohibited principal transactions designed to reduce investors’ tax liability. The firm agreed to pay $2.2 million, but did not admit or deny wrongdoing.
According to the SEC, an unidentified person at the firm reported the transactions, which were allegedly ordered by firm founder Candace King Weir, in 2012. The SEC’s source, identified by The Wall Street Journal as James Nordgaard, later told Weir that he had reported the transactions, leading to his demotion him from head trader to compliance assistant. In that role, Nordgaard was charged with investigating the conduct he had reported to the SEC.
Nordgaard, who has since resigned from Paradigm, could get up to 30% of Paradigm’s fine as a bounty. He had sued the firm on his own, but later withdrew it.
“Paradigm retaliated against an employee who reported potentially illegal activity to the SEC,” the agency’s enforcement chief, Andrew Ceresney, said. “Those who might consider punishing whistleblowers should realize that such retaliation, in any form, is unacceptable.”
Jordan Thomas of Labaton Sucharow, a former assistant director in the SEC's enforcement division, served as counsel for the SEC whistleblower.
“I often advise my clients that it’s not always easy or glamorous to be a corporate whistleblower, but the SEC has their back and the ability to remain anonymous when reporting possible securities violations can make doing the right thing a lot easier,” said Thomas, who helped develop the SEC Whistleblower Program, in a statement.
“Each time the SEC has issued a whistleblower award, awareness of the program has grown and other knowledgeable individuals have chosen to break their silence and come forward. In the coming years, based upon my experience at the SEC and now in private practice, I believe enforcement records will be broken and many of the Commission’s most significant enforcement actions will be the result of courageous whistleblowers.”
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