The Securities and Exchange Commission announced its first settlement of a Whistleblower Retaliation case under the new anti-retaliation authority granted by the 2010 financial overhaul law. A Commission rule was adopted in 2011 under the Dodd-Frank Act authorized the SEC to bring enforcement actions based on retaliation against whistleblowers who report potential securities law violations to the agency. In this case, Candace King Weir, owner of the hedge fund Paradigm Capital Management, has agreed to pay $2.2 million to settle allegations.
The charges included allegations that the firm engaged in prohibited transactions and retaliating against the high-level employee who reported the activity to regulators. After learning that the employee had reported possible violations to the SEC, the firm retaliated by demoting him to compliance assistant, stripping him of his supervisory duties, and assigning him to investigate the same conduct he had reported. These retaliatory actions resulted in his resignation.
“Paradigm retaliated against an employee who reported potentially illegal activity to the SEC,” said Andrew J. Ceresney, director of the SEC Enforcement Division. “Those who might consider punishing whistleblowers should realize that such retaliation, in any form, is unacceptable.”
“For whistleblowers to come forward, they must feel assured that they’re protected from retaliation and the law is on their side should it occur,” said Sean McKessy, chief of the SEC’s Office of the Whistleblower. “We will continue to exercise our anti-retaliation authority in these and other types of situations where a whistleblower is wrongfully targeted for doing the right thing and reporting a possible securities law violation.”
Paradigm and Weir consented to the entry of the order finding that Paradigm violated Section 21F(h) of the Securities Exchange Act of 1934 and Sections 206(3) and 207 of the Investment Advisers Act of 1940. The order finds that Weir caused Paradigm’s violations of Section 206(3) of the Advisers Act. They each agreed to cease and desist from committing or causing future violations of these provisions without admitting or denying the findings in the order. Paradigm and Weir agreed to jointly and severally pay disgorgement of $1.7 million for distribution to current and former investors in the hedge fund, and pay prejudgment interest of $181,771 and a penalty of $300,000. Paradigm also agreed to retain an independent compliance consultant.
SEC’s Press Release