On June 16, 2014, the U.S. Securities and Exchange Commission (SEC) initiated and resolved its first case charging an employer with unlawfully retaliating against a securities whistleblower under the Dodd-Frank Wall Street Reform and Consumer Protection Act.1 This administrative proceeding marks the SEC’s first exercise of its authority to enforce the anti-retaliation provisions of the Securities Exchange Act of 1934, which, as amended by Dodd-Frank, prohibits an employer from discriminating against individuals for reporting information related to a violation of the securities laws to the SEC.2

According to the SEC’s findings (which the respondent employer and its majority owner neither admitted nor denied),3 the employer was a hedge-fund adviser that engaged in principal transactions prohibited by the Investment Advisers Act of 1940.4 After the employer’s head trader reported the prohibited transactions to the SEC, the employer allegedly engaged in a series of retaliatory actions—including “removing the Whistleblower from his position as head trader, tasking him with investigating the very conduct he had reported to the Commission, changing his job function from head trader to a full-time compliance assistant, stripping him of his supervisory responsibilities, and otherwise marginalizing him”5—that ultimately led to his resignation.

The respondents consented to the entry of an order requiring them to pay over $2.1 million to settle the SEC’s charges, but the portion of that total tied to unlawful retaliation remains unclear. Most of the amounts due were designated for investors and prejudgment interest, and the SEC declined to disclose the portion of the $300,000 civil penalty specifically attributable to the employer’s retaliation against the whistleblowing head trader.

“We will continue to exercise our 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,” said Sean McKessy, chief of the SEC’s Office of the Whistleblower.6

1 Pub. L. No. 111-203, 124 Stat. 1376 (2010).

2 15 U.S.C. § 78u-6(h)(1); see also 17 C.F.R. § 240.21F-2(b)(2).

3 A copy of the SEC’s order [hereinafter SEC Order] is available at http://www.sec.gov/litigation/admin/2014/34-72393.pdf.

4 See generally 15 U.S.C. § 80b-6(3).

5 SEC Order, supra note 3, at ¶ 40.

6 Press Release, U.S. Sec. & Exch. Comm’n, SEC Charges Hedge Fund Adviser With Conducting Conflicted Transactions and Retaliating Against Whistleblower (June 16, 2014), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542096307.



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.

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