The Securities and Exchange Commission (“SEC”) recently announced a whistleblower award in connection with its first ever whistleblower anti-retaliation case. On April 28, 2015, the SEC announced that it was awarding more than $600,000 to the trader who accused Paradigm Capital Management Inc. of retaliating against him after he reported potential misconduct to the SEC. The award represents 30 percent of the more than $2 million the SEC collected from Paradigm after reaching a settlement with the Albany-based hedge fund advisory firm last summer.
It is notable that 30 percent is the maximum pay-out available to a whistleblower under the SEC’s Whistleblower Program. Referencing the “unique hardships, including retaliation” suffered by the whistleblower in this case, Andrew Ceresney, Director of the SEC’s Division of Enforcement, stated that “the Enforcement Division is committed to taking action when appropriate against companies and individuals that retaliate against whistleblowers.” According to the SEC, after learning that the whistleblower had filed a report with the SEC, Paradigm engaged in a series of illegal retaliatory and marginalizing actions, including removing him from his then-current position, tasking him with investigating the very conduct he had reported to the SEC, and changing his job function and responsibilities.
The SEC has authority to bring enforcement actions based on whistleblower retaliation under a 2011 rule implementing Section 922 of the Dodd-Frank Act, which created a Securities Whistleblower Incentives and Protection Program. The Whistleblower Program has become increasingly active in recent years –issuing 17 awards to date with payouts exceeding $50 million. According to Sean McKessy, chief of the SEC Office of the Whistleblower, “Retaliation against whistleblowers is entirely unacceptable. The underlying action against Paradigm and the award to the whistleblower demonstrates the Commission’s continued support of its whistleblower program.”
Emphasizing the SEC’s continued commitment to its Whistleblower Program, Sean McKessey, Chief of the SEC’s Office of the Whistleblower stated that “My hope is that the award today encourages potential whistleblowers to come forward in light of our demonstrated commitment to protect them against retaliatory conduct and make significant financial awards to whistleblowers who suffer employment hardships as a result of reporting possible securities law violations.” Accordingly, companies should continue to ensure they have policies in place prohibiting whistleblower retaliation, and should provide a complaint procedure for any employee who believes he or she has suffered from retaliation.