A hedge fund, Paradigm Capital Management, and its owner will pay $2.2 million to settle federal charges that the firm set up trades with a conflict of interest, and subsequently fired a high-ranking employee who reported the investment fraud. The Securities and Exchange Commission announced the settlement. This is the first case in which the agency protected a whistleblower under the new anti-retaliation law adopted in 2010.
The whistleblower reported to the SEC that the owner of Paradigm made arrangements between Paradigm and a brokerage firm, which she owns, while trading on a hedge fund client’s behalf. This kind of transaction can create a conflict of interests between the hedge fund’s manager and those of the client, the SEC stated. Law requires that hedge fund managers are required to obtain a client’s consent and document that they are taking positions on both sides of a trade.
The case began when the head trader at Paradigm’s career as a head trader “came to an abrupt end” after the company learned he had reported possible violations to the SEC in March 2012. The firm allegedly retaliated by demoting the man to compliance assistant and reassigned his supervisory responsibilities. The man resigned later that year.
Paradigm Capital and its owner agreed to settle the charges and pay $2.2 million, $1.7 of which will go back to harmed investors. The whistleblower will be eligible for an award payment.
If you have information about fraud or violations of US regulations, the attorneys at the nationally recognized law firm of Lopez McHugh can help you understand your rights. Please contact us online or call us at 877-737-8525 today.