New York Securities Lawyer Blog
The Securities and Exchange Commission (“SEC”) filed an Order instituting Cease and Desist Proceedings against Paradigm Capital Management (“Paradigm”), an investment adviser firm, and Candace Weir, the founder, Director, President, Chief Investment Officer, and Portfolio Manager of Paradigm. Weir is also the founder, Director, Chief Executive Officer, and President of C.L. King & Associates, Inc. (“C.L. King”), a broker-dealer based in Albany, New York. The SEC charged Paradigm and Weir with engaging in prohibited and conflicted transactions and then retaliating against the employee who reported the unlawful trading activity to the SEC. In anticipation of the institution of the SEC proceedings, Paradigm and Weir submitted an Offer of Settlement and agreed to pay $2.2 million to settle the SEC’s civil charges.
According to the SEC, Weir conducted prohibited principal transactions between Paradigm and C.L. King both in her role as an investment adviser to Paradigm and as the owner of C.L. King, while trading for a hedge fund client, PCM Partners L.P. II (“the Fund”). The SEC investigation also revealed that Paradigm failed to provide effective written disclosures and obtain consent from the Fund to conduct the transactions. According to the SEC, “such principal transactions pose conflicts between the interests of the adviser and the client, and therefore advisers are required to disclose that they are participating on both sides of the trade and must obtain the client’s consent.”
In 2012, James Nordgaard, head trader at Paradigm from 2009 to August 2012, presented documents to the SEC that showed that Paradigm had executed prohibited transactions with C.L. King while trading on behalf of the Fund. After Paradigm and Weir learned that Nordgaard had reported the violations to the SEC, Paradigm and Weir retaliated against him. According to the SEC, Paradigm demoted him, removed him from Paradigm’s trading desk, relieved him of his trading and supervisory responsibilities, and assigned him to investigate the same violations he had reported to the SEC. Andrew J. Ceresney, director of the SEC’s Enforcement Division stated, “Paradigm retaliated against an employee who reported potentially illegal activity to the S.E.C.” He further said, “Those who might consider punishing whistle-blowers should realize that such retaliation, in any form, is unacceptable.” See SEC Order athttp://www.sec.gov/litigation/admin/2014/34-72393.pdf
State and federal law protects financial professionals and executives who expose securities law violations, including conflicts of interests, undisclosed and prohibited transactions, insider trading, misrepresentation to traders, improper pricing techniques, illegally padding numbers and breach of fiduciary duty. The Dodd-Frank Act, details the government’s commitment to providing anti-retaliation safeguards for industry professionals who report unlawful conduct to the SEC or other regulatory bureaus by reporting illegal activities. The SEC encourages employees to come forward and report illegal activity. In 2011, the SEC initiated a whistle-blower program that compensates individuals who pass on new information that result in an enforcement action and fines in excess of $1 million. According to news sources, the SEC whistle-blower program has led to 6,573 tips and complaints since inception.
Nordgaard filed a lawsuit against Paradigm, Weir and C.L. King in 2012 for retaliation under the Dodd-Frank Act.
Lax & Neville has extensive experience in successfully handling whistleblower litigation. Lax & Neville also has experience representing clients in claims against C.L. King. Please contact our team of attorneys for a consultation at (212) 696-1999.