18 June 2014 – On Monday, June 16, 2014 the U.S. Securities and Exchange Commission (SEC) brought its first charge under anti-retaliation provisions introduced following the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. The rules protect whistleblowers who report potential securities law violations to the agency. The case involves a hedge-fund advisory firm Paradigm Capital Management Inc. (Paradigm) which was charged with retaliating against a former trader who had reported concerns about prohibited principal transactions to the SEC. The SEC’s charges allege (amongst other things) that on discovering that the whistleblower had made a report to the SEC, Paradigm demoted him, stripped him of his supervisory responsibilities, and otherwise marginalized him. In settling the charges without admission, Paradigm agreed to pay $2.2M in fines, disgorgement, and interest. The settlement relates to the underlying prohibited principal transactions as well as retaliation against the whistleblower for reporting them. Andrew J. Ceresney, director of the SEC Enforcement Division said in the agency’s press release accompanying the settlement that: “Paradigm retaliated against an employee who reported potentially illegal activity to the SEC,… Those who might consider punishing whistleblowers should realize that such retaliation, in any form, is unacceptable.” For more on recent developments in whistleblowing law and best practices for companies in the area, see this recent article in the Spring 2014 edition of Baker & McKenzie’s Quarterly Corruption and Compliance Newsletter Inside the FCPA.
