Thursday, April 30, 2015

SEC Awards Maximum Payout in First Whistleblower Retaliation Case

By John Filar Atwood

A whistleblower who was subjected to a series of retaliatory actions by Paradigm Capital Management will receive the maximum award payment of 30 percent of amounts collected in connection with the case. In its first whistleblower retaliation action, the SEC determined the level of the award after concluding that the person suffered unique hardships as a result of reporting to the Commission.

Retaliatory actions. The SEC charged Paradigm Capital with retaliating against the whistleblower after the firm learned that the person reported potential misconduct to the agency. According to the SEC, Paradigm Capital immediately engaged in a series of retaliatory actions against the whistleblower including removing the person from a then-current position, and tasking the whistleblower with investigating the very conduct the whistleblower had reported to the SEC. The Commission claims that Paradigm Capital also changed the whistleblower’s job function, stripped the whistleblower of supervisory responsibilities, and otherwise marginalized the whistleblower.

In a press release, Sean McKessy, chief of the SEC’s Office of the Whistleblower, emphasized that the Commission is committed to supporting the whistleblower program. He said that he hoped this anti-retaliation action will encourage potential whistleblowers to come forward in light of the SEC’s demonstrated commitment to protect them against retaliatory conduct and to provide significant financial awards in these cases. According to the order determining the award claim, the whistleblower in the Paradigm Capital case will receive more than $600,000 for aiding the SEC’s successful enforcement action.

Denial of awards. In a separate action, the Commission denied a different whistleblower’s award claims in connection with five actions brought by the SEC. In the order, the SEC noted that the whistleblower applied for an award in cases against Citigroup, Merrill Lynch, Navistar International, Wells Fargo Securities, and Morgan Stanley Investment Management.

To qualify for an award, a whistleblower must voluntarily provide the Commission with original information that leads to the successful enforcement of a covered judicial or administrative action. With respect to four of the five actions in question, the Commission found that the record conclusively demonstrated that the claimant submitted the tip after the matters were settled. As a result, the tip could not have led to the successful enforcement of those four actions, the SEC said.

With regard to the action against Morgan Stanley Investment Management, the staff again concluded that the whistleblower’s tip did not lead to the successful enforcement of the matter. According to the SEC, after the claimant submitted the tip, the staff that conducted a preliminary review of the information designated the tip for no further action and did not forward it to anyone assigned to the case. In addition, there is no indication that the enforcement staff members responsible for the Morgan Stanley case either received or relied upon any information provided by the claimant, the SEC noted.

To date, the SEC has awarded 17 whistleblowers since the program began more than three years ago; payouts total over $50 million.

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