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SEC Awards Whistleblower in Paradigm Capital Case

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The Securities and Exchange Commission said late Tuesday that it had awarded more than $600,000—the maximum 30% award payment allowed—to Paradigm Capital Management’s head trader for reporting that Paradigm was engaging in prohibited principal transactions.

The SEC in mid-June announced charges against the Albany, N.Y.-based hedge fund advisory firm Paradigm Capital Management for engaging in prohibited principal transactions and then retaliating against the firm’s head trader, who reported the trading activity to the SEC.

The SEC charged Paradigm Capital Management and its owner, Candace King Weir, with causing the improper principal transactions. Paradigm and Weir agreed to pay $2.2 million in the settlement.

On Tuesday, the SEC charged Paradigm with retaliating against the whistleblower after the firm learned that the whistleblower reported potential misconduct to the Commission. The head trader “suffered unique hardships, including retaliation, as a result of reporting to the Commission,” the SEC said.

Paradigm, the agency said, “immediately engaged in a series of retaliatory actions against the whistleblower including removing the whistleblower from the whistleblower’s then-current position, tasking the whistleblower with investigating the very conduct the whistleblower reported to the SEC, changing the whistleblower’s job function, stripping the whistleblower of supervisory responsibilities, and otherwise marginalizing the whistleblower.”

Andrew Ceresney, director of the SEC’s Division of Enforcement, said in a statement that the SEC “appreciates 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.”

Sean McKessy, chief of the SEC’s Office of the Whistleblower, added, “Retaliation against whistleblowers is entirely unacceptable. The underlying action against Paradigm and the award to the whistleblower demonstrates the Commission’s continued support of its whistleblower program.” 

The SEC’s whistleblower program rewards high-quality, original information that results in an SEC enforcement action with sanctions exceeding $1 million. 

Whistleblower awards can range from 10% to 30% of the money collected in a case. The money paid to whistleblowers comes from an investor protection fund established by Congress. 

To date, the SEC has awarded 17 whistleblowers since its whistleblower program began more than three years ago. Payouts now total more than $50 million.

— Check out SEC Gives Compliance Officer $1M Whistleblower Award on ThinkAdvisor.


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