Emerging Markets Law

SEC Brings First-Ever Whistle-Blower Retaliation Case

The SEC announced recently a settlement in its first-ever whistle-blower retaliation case.

Retaliation against a whistle-blower is prohibited under various legal theories, including the Sarbanes-Oxley Act and the Dodd-Frank Act each of which contain express prohibitions against whistle-blower retaliation.

The SEC had accused Paradigm Capital Management Inc. and its ownership of punishing a trader for blowing the whistle on allegedly improper transactions.  The SEC alleged that Paradigm punished the trader by demoting him after it learned he was the source of leaks to the SEC about the improper transactions.

According to the SEC, Paradigm agreed to pay about $2.2 million in sanctions to settle the charges without admitting or denying wrongdoing.

The strengthening of whistle-blower protections gives the SEC and other regulators extraordinary powers to sanction firms that might appear to retaliate against employees who cooperate with regulators.  First who are aware of allegations against them are well-advised to act cautiously when dealing with employees in such circumstances.

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