A U.S. financial industry whistleblower is to receive the maximum payout available after hedge fund Paradigm Capital Management, Inc. retaliated against him for reporting potential misconduct to regulators, the U.S. Securities and Exchange Commission (SEC) said Tuesday.
The firm’s former head trader, who tipped off the SEC to potential misconduct at the firm, will receive than US$600,000, or 30% of the monetary sanctions collected in the case, for providing key information to the SEC that led to a successful regulatory enforcement action.
The SEC says that the whistleblower in this case suffered retaliation as a result of their reporting to the commission. It says that Paradigm “engaged in a series of retaliatory actions against the whistleblower”; including removing them from their job, taking away their supervisory responsibilities, giving them the task of investigating the conduct that the whistleblower reported to the SEC, and otherwise marginalizing them at the firm.
According to order authorizing the award, SEC staff “considered the substantial evidence that the whistleblower suffered unique hardships as a result of reporting, and also found the commission’s law enforcement interest to be compelling given the commission’s previous findings of unlawful retaliation against this whistleblower.”
Back in 2014, Paradigm was charged with engaging in prohibited and undisclosed principal transactions, among other violations. It agreed to pay US$2.2 million to settle the SEC’s charges.
“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 Andrew Ceresney, director of the SEC’s division of enforcement. “The enforcement division is committed to taking action when appropriate against companies and individuals that retaliate against whistleblowers.”
“Retaliation against whistleblowers is entirely unacceptable,” said Sean McKessy, chief of the SEC’s Office of the Whistleblower. “The underlying action against Paradigm and the award to the whistleblower demonstrates the commission’s continued support of its whistleblower program.”
“My hope is that the award today encourages potential whistleblowers to come forward in light of our demonstrated commitment to protect them against retaliatory conduct and make significant financial awards to whistleblowers who suffer employment hardships as a result of reporting possible securities law violations,” McKessy added.
“We are very pleased, but not surprised, the SEC granted our application for the maximum possible award under the SEC Whistleblower Program, as our client was instrumental in the commission’s detection, investigation and prosecution of Paradigm’s wrongdoing,” said Jordan Thomas, chair of the whistleblower representation practice at Labaton Sucharow LLP, the law firm that represented the whistleblower in the case.
The Ontario Securities Commission (OSC) is currently considering the possibility of launching a similar whistleblower program. The deadline for comments on its proposed program is May 4, and the commission has scheduled a roundtable to seek further feedback on the proposal for June 9.