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SEC Settles First Whistleblower Retaliation Case; Warns There Will Be More

Posted  June 19, 2014

By Jason Enzler

The Securities and Exchange Commission announced another ground-breaking development for its whistleblower program earlier this week, releasing details on its first whistleblower retaliation case filed under the Dodd-Frank Act.  In doing so, the SEC sent an unambiguous message:  They are just getting started in going after companies that retaliate against whistleblowers.

At issue was whistleblower James Nordgaard’s complaint that his employer, an investment advisor called Paradigm Capital Management, and its owner, Candace King Weir, were involved in improper transactions involving a broker-dealer also owned by Weir.  According to the settlement order, after Nordgaard informed his employer that he had told the SEC about the possible securities law violations, he was removed from his position as a head trader and pressured to resign.  On Monday, the SEC secured a $2.2 million settlement of the claim that Nordgaard was retaliated against as well as for the underlying charge of securities fraud.

In a world where the SEC can demand tens or even hundreds of millions of dollars to resolve securities law violations, this case may seem small.  But there are at least a few reasons why this development matters (aside from putting an end to the alleged fraud).

First, the whistleblower has received what can only be seen as vindication for his efforts to risk his career in order to rectify a wrong.  Second, in taking this step forward, the SEC explicitly recognized the importance of the whistleblower retaliation protections.  As the head of the SEC’s Whistleblower Office, Sean McKessy, stated, “For whistleblowers to come forward, they must feel assured that they’re protected from retaliation and the law is on their side should it occur.”  This recognition is shared by other senior officials at the SEC.  The Director of the agency’s Enforcement Division, Andrew Ceresney, stated that companies “who might consider punishing whistleblowers should realize that such retaliation, in any form, is unacceptable” (not to mention that SEC chief Mary Jo White has also sounded-off on the importance of the whistleblower program).

And this appears to be just the first blow struck against those who might retaliate against SEC whistleblowers.  As McKessy stated in the announcement of this week’s settlement, the SEC “will continue to exercise [its] 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.”

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