SEC Brings First Dodd-Frank Anti-Retaliation Case

by Proskauer - Whistleblowing & Retaliation
Contact

The SEC recently issued an Order against Paradigm Capital Management, Inc. (Paradigm), a registered investment adviser, and its principal for allegedly engaging in principal trades without effective client disclosure and consent, and for retaliating against an employee who reported such activity to the SEC. According to the SEC, this is the first enforcement action it has taken for violations of the Dodd-Frank anti-retaliation provisions.

Dodd-Frank Anti-Retaliation Rules

Dodd-Frank prohibits an employer from retaliating against an employee for reporting potential violations to the SEC and/or assisting in any resulting enforcement action. The Act also allows whistleblowers to reap a percentage of the monetary damages obtained by the SEC in a successful enforcement action. In May 2011, the SEC adopted Rule 21F-2, which specifies the conditions for receiving anti-retaliation protection and whistleblower rewards under Dodd-Frank. Under Rule 21F-2(b), an employee is entitled to anti-retaliation protection as a whistleblower if, among other things, he or she possesses a reasonable belief that the information he or she provided relates to a possible securities law violation. Notably, an employee still may receive anti-retaliation protection as a whistleblower even if he ultimately is not entitled to a reward.

SEC Order

The SEC’s Order asserted that Paradigm violated the anti-retaliation provisions of Dodd-Frank by engaging in a series of retaliatory actions against a head trader who had reported improper principal trades to the SEC. According to the Order, when the head trader informed Paradigm of his disclosures to the SEC, Paradigm immediately removed him from the trading desk and stripped him of his day-to-day trading and supervisory responsibilities. In addition, Paradigm purportedly tasked the head trader with preparing a report on the alleged trading violations and instructed him to work offsite. Despite his repeated requests, Paradigm allegedly refused to allow the head trader to resume his regular trading and supervisory role, ultimately resulting in his resignation. The SEC found that Paradigm had no legitimate reason for changing the head trader’s functions or removing his supervisory responsibilities, concluding that Paradigm retaliated against him for reporting the principal trades to the SEC.

Without admitting or denying any wrongdoing, Paradigm and its principal agreed to pay disgorgement of $1.7 million, prejudgment interest of $181,771 and a civil penalty of $300,000. The precise amount specifically attributed to the retaliation claim is not clear. Paradigm and its principal also agreed to cease and desist from committing or causing further violations of Dodd-Frank’s anti-retaliation provisions, and to hire an independent compliance consultant to review its trading policies.

Implications

The Order against Paradigm is consistent with the SEC’s repeated statements that it intends to pursue anti-retaliation enforcement actions. As the Chief of the SEC’s Office of the Whistleblower stated in a press release accompanying the SEC Order:

[the SEC] will continue to exercise [its] anti-retaliation authority in these and other types of situations where a whistleblower is wrongfully targeted for doing the right thing and reporting a possible securities law violation.

Employers should make concerted efforts to train managers to take all appropriate steps to comply with anti-retaliation policies and strengthen their internal whistleblower compliance programs and policies. Here is a reference to our Top 10 steps to paring the risks.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Proskauer - Whistleblowing & Retaliation | Attorney Advertising

Written by:

Proskauer - Whistleblowing & Retaliation
Contact
more
less

Proskauer - Whistleblowing & Retaliation on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.