SEC Awards More than $600,000 in Whistleblower Retaliation Case

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SEC Awards $600,000+ in Whistleblower Retaliation Case

SEC Awards $600,000+ in Whistleblower Retaliation Case

For the first time, the Securities and Exchange Commission (SEC) awarded a whistleblower a share of the money his employer must pay in a settlement for improper trading and for retaliating against the employee for reporting the conduct.

The former employee of Paradigm Capital Management Inc. was awarded 30 percent of the money, over $600,000, according to the SEC. The SEC did not name the whistleblower, but a person familiar with the matter identified him as former head trader James Nordgaard, the Wall Street Journal reports. In 2014 the SEC charged the hedge fund advisory firm with engaging in prohibited principal transactions and then retaliating against Nordgaard for reporting the activity to the SEC. Paradigm is based in Albany, New York. Paradigm’s owner, Candace King Weir, was charged with causing the improper principal transactions. She agreed to pay $2.2 million to settle the charges, neither admitting nor denying wrongdoing.

The SEC award to Nordgaard is 30 percent of the settlement total, the maximum amount a whistleblower can receive under the program. The SEC said the “unique hardships” he faced were a factor in the size of his award, according to the WSJ. “We appreciate and recognize the sacrifice this whistleblower made and the important role the whistleblower played in the success of the SEC’s first anti-retaliation enforcement action,” said the SEC’s enforcement director, Andrew Ceresney. An attorney who represented the whistleblower said his client “was instrumental in the Commission’s detection, investigation and prosecution of Paradigm’s wrongdoing.”

In March 2012, Nordgaard submitted a whistleblower tip to the SEC in which he alleged that Paradigm engaged in prohibited principal transactions with affiliated broker-dealer C.L. King & Associates while trading on behalf of hedge-fund client PCM Partners L.P. II, the WSJ reports. The SEC alleges the transactions were done in an effort to reduce the tax liability of the hedge fund’s investors. In July 2012, after Nordgaard told Weir he had reported this conduct to the SEC, Paradigm changed his job function and took away his supervisory responsibilities. He eventually resigned. The WSJ reports that Nordgaard brought a civil suit against Paradigm in 2012 with allegations of retaliation, but eventually withdrew the suit.

An SEC rule adopted in 2011 under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act authorized the SEC to bring enforcement actions based on retaliation against whistleblowers who report potential securities law violations to the agency. According to an SEC news release, the SEC order finds that after Paradigm learned that the firm’s head trader had reported potential misconduct to the SEC, the firm engaged in a series of retaliatory actions that ultimately resulted in the head trader’s resignation.

Sean McKessy, chief of the SEC’s Office of the Whistleblower, said “whistleblowers . . . must feel assured that they’re protected from retaliation and the law is on their side should it occur.” McKessy said the SEC will “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.”