The Securities and Exchange Commission has charged an Albany, NY-based hedge fund advisory firm for improper trading and then retaliating against the employee who reported the company to the SEC.

The Securities and Exchange Commission has charged an Albany, NY-based hedge fund advisory firm for improper trading and then retaliating against the employee who reported the company to the SEC.

The SEC said in a statement that between 2009 to 2011 Paradigm Capital Management owner Candace Weir conducted transactions between Paradigm and CL King & Associates, a broker-dealer that she also owns, while trading on behalf of a hedge fund client.

Transactions such as this pose conflicts between the interests of the advisor and the client, the SEC said. Advisors are therefore required to disclose that they are participating on both sides of the trade and must obtain the client’s consent.  

The SEC said that once Paradigm learned that the firm’s head trader had reported potential misconduct to the SEC, the firm engaged in a series of retaliatory actions that resulted in the head trader’s resignation.

This is the first time the SEC has filed a case under its new authority to bring anti-retaliation enforcement actions. A Commission rule adopted in 2011 under the Dodd-Frank Act authorized the SEC to bring enforcement actions based on retaliation against whistleblowers who report potential securities law violations to the agency.

“Paradigm retaliated against an employee who reported potentially illegal activity to the SEC. Those who might consider punishing whistleblowers should realize that such retaliation, in any form, is unacceptable,” said Andrew Ceresney, director of the SEC enforcement division.

According to the SEC, Paradigm engaged in at least 83 principal transactions by selling 47 securities positions from the hedge fund to CL King and then repurchasing 36 of those positions for the hedge fund.

Paradigm and Weir neither confirmed nor denied the allegations and agreed to jointly pay $1.7 million to current and former investors in the hedge fund, along with interest of $181,771 and a further penalty of $300,000.  Paradigm also agreed to hire an independent compliance consultant.