Disclaimer

The information on this website is presented as a service for our clients and Internet users and is not intended to be legal advice, nor should you consider it as such. Although we welcome your inquiries, please keep in mind that merely contacting us will not establish an attorney-client relationship between us. Consequently, you should not convey any confidential information to us until a formal attorney-client relationship has been established. Please remember that electronic correspondence on the internet is not secure and that you should not include sensitive or confidential information in messages. With that in mind, we look forward to hearing from you.

 Skip to Content

SEC Takes Action for Retaliation Against Whistleblower
September 16, 2014

The SEC has brought its first enforcement action for alleged retaliation against a whistleblower under the SEC’s Dodd-Frank whistleblower rules. The case demonstrates the Hobson’s choice companies face when they become aware of a whistleblower’s identity.

In In the Matter of Paradigm Capital Management, Inc., the company’s head trader informed Paradigm that he had secretly disclosed improprieties at the company to the SEC, some which related to trades he had effected. Paradigm immediately retained outside counsel to provide advice. Stating that it needed to investigate, the company thereafter relieved the whistleblower of his day-to-day trading and supervisory responsibilities, tasked him with drafting a report on the improprieties he alleged, and denied him access to the company’s network. When the whistleblower requested to return to work, the company resisted and determined the relationship was "irreparably damaged." Attempts to agree on severance terms failed.

The case illustrates the dilemmas a company can encounter when faced with a whistleblower. The company may have legitimate interests in understanding the whistleblower’s accusations and conduct, limiting its exposure to any further improper conduct, and, in some cases, preserving any cause of action it has against a whistleblower who acted improperly. On the other hand, if the company does not allow the whistleblower to continue to perform his or her regular job responsibilities, retaliation charges may find a sympathetic ear at the SEC.

Paradigm also presents a reminder that there is no surefire way to escape retaliation claims. The best strategy a company can use to protect itself is to institute a compliance program that is enforced and establish a monitored compliance hotline. Finally, the company should consistently encourage and reward internal reporting of any wrongdoing.
Related Practices
Securities Litigation and Enforcement
©2024 Carlton Fields, P.A. Carlton Fields practices law in California through Carlton Fields, LLP. Carlton Fields publications should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information and educational purposes only, and should not be relied on as if it were advice about a particular fact situation. The distribution of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship with Carlton Fields. This publication may not be quoted or referred to in any other publication or proceeding without the prior written consent of the firm, to be given or withheld at our discretion. To request reprint permission for any of our publications, please use our Contact Us form via the link below. The views set forth herein are the personal views of the author and do not necessarily reflect those of the firm. This site may contain hypertext links to information created and maintained by other entities. Carlton Fields does not control or guarantee the accuracy or completeness of this outside information, nor is the inclusion of a link to be intended as an endorsement of those outside sites.