SEC Awards Whistleblower in First Retaliation Case

After winning its first retaliation case, the SEC announced that it awarded a whistleblower with the maximum payment of 30 percent of the amount collected.

In the SEC enforcement action In the Matter of Paradigm Capital Management, Inc. and Candace King Weir, File No. 3-15930 (June 16, 2014), the SEC charged Paradigm with retaliating against the whistleblower after learning that he reported potential misconduct to the SEC. According to the SEC, Paradigm immediately engaged in a series of retaliatory actions against the whistleblower that included removing him from his then-current position, tasking him with investigating the very conduct that he reported to the SEC, changing his job function and otherwise marginalizing him.

The whistleblower was awarded over $600,000 for providing the information that led to the successful enforcement action.

Lofchie Comment: This is a case in which the law and human nature may not meet. It is unrealistic, particularly in the context of a small business, to require coworkers to trust someone who has turned in that business to the government and collected a bounty. Practically speaking, would it ever be possible for a firm to discipline a known whistleblower for doing a poor job without potentially being subject to the counteraccusation that the firm has retaliated?

Of course, the real world and human nature have little to do with regulatory requirements. To address these requirements, firms that employ a known whistleblower must develop a meticulous policy for dealing with such an individual. Specifically, as this case makes clear, there should not be any change in the whistleblower’s job or role within the firm, either formally or informally, unless the reasons for that change can be documented fully.