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.
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