SEC Brings First Dodd-Frank Anti-Retaliation Case

The SEC recently issued an Order against Paradigm Capital Management, Inc. (Paradigm), a registered investment adviser, and its principal for allegedly engaging in principal trades without effective client disclosure and consent, and for retaliating against an employee who reported such activity to the SEC.  According to the SEC, this is the first enforcement action it has taken for violations of the Dodd-Frank anti-retaliation provisions.

Dodd-Frank Anti-Retaliation Rules

Dodd-Frank prohibits an employer from retaliating against an employee for reporting potential violations to the SEC and/or assisting in any resulting enforcement action.  The Act also allows whistleblowers to reap a percentage of the monetary damages obtained by the SEC in a successful enforcement action.  In May 2011, the SEC adopted Rule 21F-2, which specifies the conditions for receiving anti-retaliation protection and whistleblower rewards under Dodd-Frank.  Under Rule 21F-2(b), an employee