WASHINGTON (AP) — A hedge fund and its owner will pay $2.2 million to settle federal charges that the firm set up trades that represented a conflict of interest and then retaliated against a high-ranking employee who reported the conduct to regulators.
The Securities and Exchange Commission announced the settlement Monday with Paradigm Capital Management of Albany, New York, and its owner, Candace King Weir. The SEC said it’s the agency’s first case to protect a whistleblower under the new anti-retaliation authority granted by the 2010 financial overhaul law.
The conflict arose because Weir initiated transactions between Paradigm and a brokerage firm she also owns while trading on a hedge fund client’s behalf, the SEC said.
That type of arrangement can create a conflict between the interests of a hedge fund’s manager and those of a client, the agency said. Hedge fund managers are required by law to disclose in writing that they are taking positions on both sides of a trade and to obtain the client’s consent before completing each transaction.
Paradigm and Weir neither admitted nor denied the SEC’s allegations but agreed to refrain from future violations. Under the settlement, they are returning $1.7 million plus $181,771 to investors in Paradigm and a $300,000 civil penalty.
In addition, Paradigm agreed to hire an independent compliance consultant.
“We are pleased to resolve this matter and have it behind us,” Paradigm and Weir said in a statement.
The whistleblower, who was the head trader at Paradigm starting in 2009, resigned in August 2012. After learning that he had reported possible violations to the SEC, the firm retaliated by demoting him to compliance assistant, stripping him of his supervisory duties, and assigning him to investigate the same conduct he had reported, the agency said. The SEC didn’t identify the whistleblower.
The head trader at Paradigm during that period was James Nordgaard, who sued Paradigm in federal court in 2012 for illegally retaliating against him, court records show. Nordgaard’s lawsuit alleged that his career as a head trader “came to an abrupt end” after he told Paradigm and Weir that he had reported what he believed to be illegal activities to the SEC.
Weir also operates a private nonprofit foundation in Albany that reported $20 million in assets and gave nearly $1 million in 2012 to more than 100 groups, including $504,000 to the Museum of Modern Art in Manhattan.
Associated Press writer Michael Virtanen in Albany contributed to this report.