The Securities and Exchange Commission (SEC) has awarded an unnamed whistleblower the maximum monetary award (30 percent of the settlement amount) in its first anti-retaliation case. An employee of New York-based hedge fund advisory firm, Paradigm Capital Management, alleged the employer was engaging in illicit transactions and subjected the employee to demotion and harassment as a result of the allegations. An SEC spokesperson reports this award will demonstrate SEC support of whistleblowers and anti-retaliation laws.
Paradigm Capital Management Allegedly Demoted and Harassed SEC Whistleblowing Employee
In 2012, an employee presented information to the SEC alleging Paradigm Capital Management was involved in illicit transactions with a broker-dealer while trading for a hedge-fund client with the intention of reducing investors’ tax liability.
Once the whistleblower informed his Paradigm of his report to the SEC, his employer transitioned the whistleblower from his position as head-trader to a new position, assistant compliance officer, with the job of investigating the very misconduct he had reported to the SEC.
The whistleblower was allegedly denied access to his email account and other accounts and stripped of his supervisory roles. As a result of the retaliation, the whistleblower resigned from employment with the company. In 2014, in response to the company’s alleged mistreatment of the whistleblower, the SEC initiated its first anti-retaliation case.
SEC Rule: Financial Incentive Awards and Whistleblower Retaliation Protection
The SEC established its whistleblower awards program in 2010 with the Dodd-Frank Wall Street Reform Act. Individuals were presented with an opportunity to receive a financial reward for providing high-quality, original information on securities violations resulting in sanctions greater than $1 million. The Act provides for whistleblowers to be awarded 10 to 30 percent of the total monies recovered through settlement or verdict from a securities violation case.
In order to protect whistleblowers from being punished by their employers for reporting potential violations to the SEC, the Act incorporated anti-retaliation penalties. For the first time, informants had the reassurance of legal protection and impressive financial incentives to motivate them to disclose suspected misconduct.
The financial incentives and anti-retaliation protection has been tremendously effective in motivating whistleblowers to come forward. In 2015’s first quarter, the numbers of whistleblower allegations brought to the SEC were increased by greater than 20 percent compared to the number of reports received in 2014’s first quarter.
In five years, the SEC has granted whistleblowers more than $50 million, the highest among them including $30 million awarded in a 2014 case and $14 million in a 2013 case.
SEC Whistleblower Granted Maximum 30 Percent Award for Employment Retaliation
The advisory firm agreed to settle with the SEC for $2.2 million. On April 28, 2015, the SEC announced it would reward the whistleblower the maximum reward of 30 percent of the $2.2 million, or $660,000, in its first anti-retaliation case. The SEC reports that the maximum award was granted because the whistleblower in this case suffered unique hardships, including retaliation.
The SEC is prohibited from disclosing the identity of whistleblowers. The advisory firm did not admit or deny any misconduct in this case.
SEC Chair, Mary Jo White, explained that the SEC is increasingly acting as the whistleblowers’ advocate. “We want whistleblowers - and their employers - to know that employees are free to come forward without fear of reprisals.”
The SEC expects the maximum award in this first anti-retaliation case will demonstrate their commitment to the whistleblower program – a visible warning against taking retaliatory action toward employees or enacting any internal policies attempting to deter individuals from reporting suspected securities violations.