Davis Polk


Whistleblower Update: SEC Resolves First Case Under New Authority to Bring Anti-Retaliation Claims

June 18, 2014

The Securities and Exchange Commission ("SEC") announced a settlement on Monday, June 16, 2014 that marked its first case to protect a whistleblower under the anti-retaliation provisions of the whistleblower reward program enacted as part of the Dodd-Frank Act. This direct enforcement authority by the SEC complements the traditional civil remedies available under Sarbanes-Oxley to whistleblowers claiming retaliation.1 The enforcement action and settlement, along with the SEC’s related statements, underscore the seriousness with which the SEC views whistleblower retaliation and its whistleblower protection mandate.

In an administrative action, the SEC accused Paradigm Capital Management Inc. and its owner, Candace King Weir, of improperly retaliating against a trader for acting as a whistleblower and disclosing transactions that were allegedly improper because of an undisclosed conflict of interest.

According to the SEC, when Paradigm learned that its head trader had reported the potential misconduct to the SEC, the firm engaged in a series of retaliatory actions, including stripping him of his title and authority and otherwise marginalizing him until he eventually resigned.

The firm agreed to pay approximately $2.2 million to settle the SEC’s charges related to the alleged retaliation and principal trading violation, though the firm did not admit or deny wrongdoing. The majority of the sanction, $1.7 million, was designated for disgorgement of administrative and other fees that will be returned to investors, $181,771 amounts to prejudgment interest, and the remaining $300,000 was the actual penalty.2

The SEC’s public statements in connection with the settlement confirm its previously expressed commitment to continue pursuing such anti-retaliation efforts.

“Paradigm retaliated against an employee who reported potentially illegal activity to the SEC,” said Andrew J. Ceresney, director of the SEC Enforcement Division. “Those who might consider punishing whistleblowers should realize that such retaliation, in any form, is unacceptable.”

“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,” said Sean McKessy, chief of the SEC’s Office of the Whistleblower. “We will continue to exercise our 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.”

1 For further analysis on the legal and practical dimensions of whistleblower protections, see Davis Polk’s June 9, 2014, Memorandum, Recent Developments in Whistleblower Protections: Legal Analysis and Practical Implications.

2 The case is In the Matter of Paradigm Capital Management and Candace King Weir, case number 3-15930, before the Securities and Exchange Commission. The SEC’s order is available at http://www.sec.gov/litigation/ and its press release regarding the case is available at http://www.sec.gov/News/PressRelease/.

If you have questions regarding this publication, please contact any of the lawyers listed below or your regular Davis Polk contact.




Angela T. Burgess

212 450 4885


Antonio J. Perez-Marques

212 450 4559


Linda Chatman Thomsen

202 962 7125


Raul F. Yanes

202 962 7122


Julia Kiechel

212 450 3052


Executive Compensation



Cynthia Akard

650 752 2045


Jeffrey P. Crandall

212 450 4880


Edmond T. FitzGerald

212 450 4644


Kyoko Takahashi Lin

212 450 4706


Jean M. McLoughlin

212 450 4416


Notice: This publication, which we believe may be of interest to our clients and friends of the firm, is for general information only. It is not a full analysis of the matters presented and should not be relied upon as legal advice. If you have received this email in error, please notify the sender immediately and destroy the original message, any attachments thereto and all copies. Refer to the firm's privacy policy located at davispolk.com for important information on this policy. Please consider adding Davis Polk to your Safe Senders list or adding dpwmail@davispolk.com to your address book.

Unsubscribe: If you would rather not receive these publications, please respond to this email and indicate that you would like to be removed from our distribution list.

© 2014 Davis Polk & Wardwell LLP | 450 Lexington Avenue | New York, NY 10017