SEC Brings First Action on Whistleblower Retaliation

The U.S. Securities and Exchange Commission (SEC) said it filed — and promptly settled, for $2.2 milllion — its first-ever charges against a company for retaliating against a whistleblower who reported wrongdoing under the Dodd-Frank Act.

The SEC charged Paradigm Capital Management Inc., a hedge fund advisory firm, with engaging in prohibited principal transactions and then removing a head trader from his regular responsibilities after he reported the conflict of interest to the SEC.

Under the Dodd-Frank Act, it’s illegal to punish a whistleblower for reporting questionable securities activity — or for cooperating in an investigation of possible wrongdoing.

The enforcement action was the latest in the SEC’s slow-but-steady campaign to test the full range of its Dodd-Frank mandate.

The Dodd-Frank Act was passed in 2010 to tighten financial regulations in the wake of the 2008 fiscal crisis. Among other things, it offered new protections to encourage employees to report misdeeds at their companies. It is enforced by the SEC.

“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, head of the SEC’s Whistleblower Office.

Tagged: Dodd-Frank Act, Enforcement Bodies, Fraud Types, Securities and Exchange Commission (SEC), Securities Fraud, Whistleblower Laws (Federal)