NEW YORK —The Securities and Exchange Commission has sounded a warning to Wall Street and corporate America, taking aim at a hedge fund not only for improper trading but for punishing the employee who blew the whistle on the wrongdoing.
On Monday, Paradigm Capital Management became the first investment fund to pay a fine for retaliating against an employee who reported his firm’s misdeeds to the SEC. The hedge fund, which is based in Albany, N.Y., and manages $1.5 billion of client money, agreed to pay $2.2 million to settle the civil charges.
The charges stem from an accusation that Paradigm Capital’s owner, Candace King Weir, conducted improper transactions between Paradigm Capital and C.L. King & Associates, a broker-dealer that she owns, while trading on behalf of a hedge fund client, the SEC said. And after Paradigm Capital learned that its head trader reported the wrongdoing to the SEC, the agency said, the firm “engaged in a series of retaliatory actions,” including stripping him of his title, “that ultimately resulted in the head trader’s resignation.”
“Those who might consider punishing whistle-blowers should realize that such retaliation, in any form, is unacceptable,” said Andrew J. Ceresney, director of the SEC’s enforcement division.
Both Paradigm Capital and Weir neither admitted nor denied the findings.
“We are pleased to resolve this matter and have it behind us,” a spokesman for Paradigm Capital and Weir said. No new paradigm here.
It's $ame old, $ame old. It's all for $how.
The SEC was able to mount a case against Paradigm Capital after the former employee, James Nordgaard, presented documents to the regulator in 2012 that revealed that the firm had executed a series of prohibited transactions with C.L. King. The agency’s subsequent investigation uncovered a trading strategy from 2009 to 2011 that was used to reduce the tax liabilities of the firm’s investors.
The investigation also uncovered that Weir had a conflict of interest in her role as both the owner of C.L. King and an adviser to Paradigm Capital that required written disclosure and consent. In addition, it found that C.L. King’s chief financial officer served as chief financial officer for Paradigm Capital. The requirements for written disclosure were not met in either case, the SEC said.
Nordgaard was head trader at Paradigm Capital from 2009 to August 2012, when his contract was terminated. Nordgaard, who filed a lawsuit against the firm in 2012, said that shortly after he told his employer that he had reported trading violations, Paradigm Capital “embarked on a campaign of retaliation” against him.
Days later, Nordgaard was removed from his desk and stripped of his trading privileges, according to the lawsuit. He was then assigned to “an isolated location to do low-level compliance work.” One month later, Nordgaard resigned.
Nordgaard is just one of thousands of whistle-blowers who have come forward as part of an SEC program that encourages — and provides monetary incentive to — employees who know their employers are breaking the law.
The SEC’s whistle-blower program was initiated in 2011 after the Dodd-Frank Act required the agency to pay an award to workers who come forward with information about violations. It also authorizes the agency to bring enforcement based on retaliation against whistle-blowers.
Under the guidelines of the new program, anyone with a tip can receive up to 30 percent of the fine meted out by SEC, as long as the new information that is passed along yields enforcement action and fines of more than $1 million.
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The $y$tem is so rank and rotted with corruption that I think you can pretty quickly tell my enthu$ia$m for it and the Globe is gone.
Sorry, readers. I've failed you.
