SEC Settles Whistleblower Retaliation Charge

Randi Klein Hyatt
Randi Klein Hyatt

On June 16th, the Securities and Exchange Commission filed (and settled) its first Dodd-Frank whistleblower anti-retaliation claim. While employers should be aware of the new enforcement action taken by the SEC, the allegations show that even the most sophisticated employer can engage in very questionable behavior.

According to the SEC Settlement Order, which can be found here, Paradigm Capital Management, Inc., a registered investment adviser, engaged in a series of prohibited principal transactions between 2009 and 2011. In March 2012, Paradigm’s head trader disclosed these transactions to the SEC. The trader continued to work for Paradigm and, in July 2012, advised Paradigm of his disclosure. The next day, Paradigm removed him from his trading desk and temporarily relieved him of his trading duties. Paradigm also directed him to work off-site and to prepare a report of the questionable conduct.

Instead of working off-site, the trader, at his request, was permitted to work from home. Noting that the employment relationship was irreparably damaged, Paradigm attempted to work out a separation agreement. That proved unsuccessful, and the trader indicated his desire to return to his old position. Needless to say, the trader returned to work but was assigned different responsibilities. After Paradigm accused the trader of breaching his confidentiality agreement, the trader resigned.

The SEC had little trouble finding that Paradigm engaged in adverse employment actions as a result of the trader reporting possible violations to the SEC, and fined Paradigm (and its majority owner) over $2,000,000 (albeit for both the retaliation and the primary violations). This case should serve as an example of what not to do when faced with an employee who engages in protected activity. Indeed, any such actions taken by an employer will be highly scrutinized. The SEC’s press release can be found here.

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