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Anti-Retaliation Program by SEC ensnarls Hedge Fund firm – Glass & Goldberg | Financing, Property & Bankruptcy Law
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Anti-Retaliation Program by SEC ensnarls Hedge Fund firm

Ever since the Watergate scandal led to the resignation of President Nixon in the early 1970’s, it is a commonly used aphorism that “it is the cover-up, not the crime” that always leads to the demise of the offenders. A new variation on that theme applies that same idea to the problem of corporate retaliation. Frequently, it is not corporate malfeasance but retaliation against whistleblowers revealing that malfeasance which plagues companies and other types of institutions.

Since the Dodd-Frank law governing corporate securities was enacted, the Securities and Exchange Commission (SEC) has instituted a program that encourages — and provides monetary incentive to — employees who know their employers are breaking the law. The program has enabled the SEC to receive 6,573 tips and complaints from employees of corporate wrongdoing since its inception in 2011. The guidelines of the new program permit an employee to receive as much as 30 percent of the fine meted out by S.E.C., as long as they pass on new information that yields enforcement action and fines of more than $1 million. This anti-retaliation initiative most recently led to the investigation of Paradigm Capital which just agreed to settle claims for retaliation and conflict of interest for $2.2 million.

The head of Paradigm Capital, Candace King Weir, had orchestrated certain transactions with a certain company, C.L. King she also owned which acted as a broker and dealer. Unbeknownst to Paradigm Capital’s own clients, Weir approved the execution of prohibited transactions with C.L. King while trading on behalf of one of its hedge fund clients. After a former employee, James Nordgaard, presented documents to the regulator in 2012 that revealed that the firm had engaged in such unlawful activity, he was removed from his desk and stripped of his trading privileges despite being its head trader at the time. Then he was assigned to “an isolated location to do low-level compliance work”.

Had Paradigm Capital not taken these retaliatory measures, it is possible the SEC would never have learned of the improper transactions. If it’s not the initial wrongdoing, it’s the retaliation against whistleblowers that can place a securities firm under suspicion.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services and advice for clients in all aspects of commercial compliance, business litigation and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at www.glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

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