Articles Tagged with whistleblower

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SEC Whistleblowers

On January 23, the SEC announced that its whistleblower program will pay out to three whistleblowers a combined award of $7 million.  The whistleblowers’ awards were for helping the SEC pursue an investment scheme.

One whistleblower gave the SEC the initial information that launched the SEC investigation.   That whistleblower will receive more than $4 million.  Two other whistleblowers jointly provided additional evidence that also contributed to the SEC’s successful enforcement action.  Those two whistleblowers will split more than $3 million.

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Over $100 Million in Rewards Given to Whistleblowers

The SEC has announced that, as of yesterday, it has made more than $100 million in awards to whistleblowers under the SEC Whistleblower program.  Created by Congress as part of the Dodd-Frank Act in 2010, the program has been up and running since August 2011.  After five years, the program appears to be a resounding success.

Under the whistleblower program, one who voluntarily provides a useful tip to the SEC that leads to the recovery of over $1 million in sanctions may get an award.  The information regarding a securities law violation must be independently known by the whistleblower and cannot be derived from another source.  The amount of the award is discretionary, but under SEC rules, the amount will be between 10% and 30% of the SEC’s recovery.  The amount may be adjusted based on the significance of the information provided, the degree of assistance provided by the whistleblower, the SEC’s interest in deterring future violations, and the whistleblower’s cooperation with a company’s internal compliance and auditing systems.  The Dodd-Frank Act also included anti-retaliation protections, creating both a private right of action for whistleblowers and enforcement mechanisms for the SEC.

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The Securities and Exchange Commission (“SEC”) has brought its first enforcement action for whistleblower retaliation under the Dodd-Frank Act against hedge fund advisory firm, Paradigm Capital Management (“Paradigm”).  According to Reuters, the SEC’s case stems from Paradigm’s alleged retaliation against its former head trader, James Nordgaard (“Nordgaard”), after Nordgaard made a whistleblower submission to the SEC about Paradigm.

The SEC claims that Paradigm’s owner, Candace King Weir (“Weir”), conducted client transactions between Paradigm and a broker dealer that she owns, C.L. King & Associates (“C.L. King”), without disclosing to the client that she was effectively participating on both sides of the transactions.  Specifically, the SEC claims that Weir’s trading strategy for her client PCM Partners L.P. II (“PCM”) involved Paradigm’s traders, including Nordgaard, selling securities that had unrealized losses from the hedge fund to a proprietary trading account at C.L. King.  According to the SEC, Weir’s intention was for the realized losses to offset PCM’s realized gains in other securities.

The SEC’s Order Instituting Administrative Proceeding states that, because Weir was the advisor to the PCM hedge fund and the owner of both Paradigm and C.L. King, she had a conflicted role in the transactions which was required to be disclosed to PCM.  According to the SEC’s Order, Paradigm established a conflicts committee to review and approve each of the principal transactions on behalf of PCM, purportedly to satisfy the disclosure and consent requirements.  The conflicts committee, however, was itself conflicted, in that, one of its members was the chief financial officer of both Paradigm and C.L. King.