Like several other federal agencies, the Securities and Exchange Commission has implemented a whistleblower program allowing those with first-hand knowledge of fraud to come forward, report what they know, and enjoy protection from employer retaliation. As we have reported in the past, employees choosing to report fraud to internal compliance authorities do not enjoy the same protection from retaliation and run the risk of losing their jobs for shedding light on unethical and illegal conduct. Therefore, the SEC has recently ramped up its efforts to encourage those involved in the securities industry to make use of its whistleblower procedures – and recently settled its first anti-retaliation case against prominent hedge fund manager Candace King Weir.
Details of SEC Case Against Weir
Candace King Weir is Director and President of the hedge fund Paradigm Capital Securities, Inc. and is widely recognized as one of the most successful women working on Wall Street. Nonetheless, Paradigm was targeted in a whistleblower lawsuit, filed in 2012, by one of its top traders alleging serious problems with conflicted trades. According to the allegations, as soon as Paradigm learned of the relator’s decision to expose the alleged conflict to the SEC, he was removed from his trading desk and directed to report offsite to a separate building. He was thereafter required to conduct an investigation of the information he reported and contemporaneously relieved of all supervisory duties. The demotion and adverse workplace treatment encouraged the relator to resign his position later that year and come forward with allegations of workplace retaliation to a whistleblower attorney.
Historic Settlement Sends Message to Employers
In an effort to resolve the matter and “have it behind [them],” Paradigm and Ms. Weir agreed to settle the matter with the relator for $2.2 million. While a large portion of the settlement will be refunded to investors involved in the alleged conflicted trade issue, the whistleblower is set to receive a hefty sum, not only for his involvement in revealing the fraud, but for his subsequent mistreatment in the workplace for coming forward.
In a statement by the SEC, which typically remains tight-lipped regarding the details of its settlements, the SEC noted 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.”
Under SEC regulations, any trade that could constitute a possible conflict between two or more investors must be disclosed to all parties involved and consented to by all.
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