The SEC has rewarded the whistleblower in the first anti-retaliation enforcement action with a payout of thirty percent of the monetary sanction against the company. The reward by the securities regulator totaled $600,000.
The enforcement action against Paradigm Capital Management received widespread publicity last summer because it was the Commission’s first use of SEC Rule 21F-2(b)(2) which provides for enforcement of the whistleblower program’s retaliation protections by the SEC. The CFTC regulations do not similarly provide for agency enforcement action of its protections.
The securities whistleblower reported the investment adviser for failing to disclose or obtain consent concerning a conflict of interest in their management of the funds in trading accounts for clients. Paradigm was making trades between client accounts and accounts controlled or affiliated with the company or its employees.
Several months after his report, the whistleblower disclosed his tip to the company. The company suspended him from his role as a head trader, asked him to work from home on compliance duties unrelated to his position as a trader, and accused him of violating his confidentiality agreement. He eventually resigned.
The decision to reward the individual with the highest percentage of monetary sanctions received by the SEC is a welcome act. Dodd-Frank specified that the whistleblower program award incentives between ten and thirty percent of the amount collected as a result of the information provided.