NY hedge fund advisory firm Paradigm Capital Management and its owner Candace King Weir also agreed to pay $2.2 million to settle SEC charges without admitting or denying wrong doing back in June 2014.
The SEC announced a payment of 30 percent of amounts collected in connection with the SEC’s first retaliation case. The whistleblower will receive over $600,000 for providing key original information that led to the successful SEC enforcement action. The whistleblower in this matter suffered unique hardships, including retaliation, as a result of reporting to the Commission.
To date, the SEC has awarded 17 whistleblowers since its program began more than three years ago. Payouts now total over $50 million.
The SEC says that after Paradigm learned that the firm’s head trader had reported potential misconduct to the SEC, the firm engaged in a series of retaliatory actions that ultimately resulted in the head trader´s resignation. A Commission rule adopted in 2011 under the Dodd-Frank Act authorized the SEC to bring enforcement actions based on retaliation against whistleblowers who report potential securities law violations to the agency.
This is the first time the SEC has filed a case under its new authority to bring anti-retaliation enforcement actions. The SEC also charged the firm’s owner with causing the improper principal transactions.
“Paradigm’s head trader reported trading activity revealing that Paradigm engaged in prohibited principal transactions with affiliated broker-dealer C.L. King & Associates while trading on behalf of hedge fund client PCM Partners L.P. II.” said Andrew J. Ceresney, director of the SEC Enforcement Division. “The SEC’s subsequent investigation found that Paradigm engaged in the trading strategy from at least 2009 to 2011 to reduce the tax liability of the firm’s hedge fund investors. As part of that strategy, Weir directed Paradigm’s traders to sell securities that had unrealized losses from the hedge fund to a proprietary trading account at C.L. King. The realized losses were used to offset the hedge fund’s realized gains. Paradigm engaged in at least 83 principal transactions by selling 47 securities positions from the hedge fund to C.L. King and then repurchasing 36 of those positions for the hedge fund.”
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