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Tipster Wins 30 Percent of $2.2 Million Award After Former Employer Retaliates Against Him for Blowing the Whistle on Prohibited Principal Transactions

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Tipster Wins 30 Percent of $2.2 Million Award

Tipster Wins 30 Percent of $2.2 Million Award


Companies that retaliate against whistleblowers may not only be penalized by the U.S. Securities and Exchange Commission (SEC), they may also distribute part of that penalty to the alleged victim of the retaliation.

The SEC did just that on Tuesday when the agency gave a former employee of Paradigm Capital Management Inc. a 30 percent cut of the penalty that his employer had to pay the federal government for allegedly retaliating against him, the first such action in the nation’s history, according to the Wall Street Journal (WSJ).

The tipster, whom the agency did not name, was awarded “over $600,000.” A person familiar with the case told WSJ the whistleblower is a former head trader at the firm. The hedge-fund advisory firm was charged last year by the SEC with engaging in prohibited principal transactions and then retaliating against the whistleblower, who had reported the activity to the SEC.

Candace King Weir, the owner of Paradigm, was charged with causing the improper principal transactions and agreed to pay $2.2 million to settle the allegations without admitting or denying any wrongdoing. The whistleblower award is 30 percent of that settlement, which is the maximum amount a tipster can receive under the program. The SEC said the man received such a sizable reward due to the “unique hardships” he faced, WSJ reported.

The tipster submitted a whistleblower tip to the SEC in March 2012 alleging 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. The transactions were carried out in an effort to reduce the tax liability of the hedge fund’s investors, the SEC alleges, according to WSJ.

After the former head trader in July 2012 told Ms. Weir that he had reported the conduct to the SEC, he alleges Paradigm changed his job function, took away his supervisory responsibilities and tasked him with investigating the conduct he had reported to the SEC. The whistleblower eventually resigned. Also in 2012, the tipster brought his own civil suit against Paradigm with similar allegations of retaliation. That suit was later withdrawn, WSJ reported.


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