Difference between revisions of "Whistleblower Protection Laws"

Line 146: Line 146:
'''The action against IGT was the SEC’s first standalone retaliation case.'''  However, it is consistent with a 2014 enforcement action that indicated, for the first time, that retaliating against a whistleblower can result not only in a private suit brought by the whistleblower but also in a unilateral SEC enforcement action.  
'''The action against IGT was the SEC’s first standalone retaliation case.'''  However, it is consistent with a 2014 enforcement action that indicated, for the first time, that retaliating against a whistleblower can result not only in a private suit brought by the whistleblower but also in a unilateral SEC enforcement action.  
*On June 16, 2014, the SEC announced that it was taking enforcement action against Paradigm Capital Management, Inc. (“Paradigm”), a hedge fund advisory firm, for engaging in prohibited principal transactions and for retaliating against the whistleblower who disclosed the unlawful trading activity to the SEC. ''See'' [https://www.sec.gov/litigation/admin/2014/34-72393.pdf Exchange Act Release No. 72393] (June 16, 2014). This was the first case in which the SEC exercised its authority under Dodd-Frank to bring enforcement actions based on retaliation against whistleblowers.
*On June 16, 2014, the SEC announced that it was taking enforcement action against Paradigm Capital Management, Inc. (“Paradigm”), a hedge fund advisory firm, for engaging in prohibited principal transactions and for retaliating against the whistleblower who disclosed the unlawful trading activity to the SEC. ''See'' [https://www.sec.gov/litigation/admin/2014/34-72393.pdf Exchange Act Release No. 72393] (June 16, 2014). This was the first case in which the SEC exercised its authority under Dodd-Frank to bring enforcement actions based on retaliation against whistleblowers.
 
*According to the order, Paradigm retaliated against its head trader for disclosing, internally and to the SEC, prohibited principal transactions with an affiliated broker-dealer while trading on behalf of a hedge fund client. The transactions were a tax-avoidance strategy under which realized losses were used to offset the hedge fund’s realized gains.
According to the order, Paradigm retaliated against its head trader for disclosing, internally and to the SEC, prohibited principal transactions with an affiliated broker-dealer while trading on behalf of a hedge fund client. The transactions were a tax-avoidance strategy under which realized losses were used to offset the hedge fund’s realized gains.
*When Paradigm learned that the head trader had disclosed the unlawful principal transactions to the SEC, it retaliated against him by removing him from his position as head trader, changing his job duties, placing him on administrative leave, and permitting him to return from administrative leave only in a compliance capacity, not as head trader. The whistleblower ultimately resigned his position.
 
*Paradigm settled the SEC charges by consenting to the entry of an order finding that it violated the anti-retaliation provision of Dodd-Frank and committed other securities law violations; '''agreeing to pay more than $1 million to shareholders''' and to hire a compliance consultant to overhaul their internal procedures; and entering into a cease-and-desist order.
When Paradigm learned that the head trader had disclosed the unlawful principal transactions to the SEC, it retaliated against him by removing him from his position as head trader, changing his job duties, placing him on administrative leave, and permitting him to return from administrative leave only in a compliance capacity, not as head trader. The whistleblower ultimately resigned his position.
 
Paradigm settled the SEC charges by consenting to the entry of an order finding that it violated the anti-retaliation provision of Dodd-Frank and committed other securities law violations; '''agreeing to pay more than $1 million to shareholders''' and to hire a compliance consultant to overhaul their internal procedures; and entering into a cease-and-desist order.


The [https://www.sec.gov/news/press-release/2014-118 SEC’s press release] accompanying the order includes the following statement by Enforcement Director Andrew Ceresney: “Those who might consider punishing whistleblowers should realize that such retaliation, in any form, is unacceptable.” '''The Paradigm enforcement action suggests that whistleblower retaliation can result in liability far beyond the damages that a whistleblower can obtain in a retaliation action and that retaliation can invite or heighten SEC scrutiny.'''
The [https://www.sec.gov/news/press-release/2014-118 SEC’s press release] accompanying the order includes the following statement by Enforcement Director Andrew Ceresney: “Those who might consider punishing whistleblowers should realize that such retaliation, in any form, is unacceptable.” '''The Paradigm enforcement action suggests that whistleblower retaliation can result in liability far beyond the damages that a whistleblower can obtain in a retaliation action and that retaliation can invite or heighten SEC scrutiny.'''