Paradigm Capital Management and founder Candace King Weir agreed to pay $2.2 million to settle charges that it engaged in prohibited transactions and retaliation against an employee whistle-blower, the Securities and Exchange Commission announced Monday.
The Albany, N.Y-based hedge fund firm, which has $1.7 billion under management, agreed to the settlement without admitting or denying the allegations.
The case, which represents the SEC's first using new authority to bring anti-retaliation enforcement actions, “underscores the importance of properly managing and mitigating conflicts of interest,” said Andrew Ceresney, SEC enforcement director, on a press call.
According to the SEC consent order, Ms. Weir, Paradigm's majority owner, executed transactions between Paradigm and a broker-dealer, C.L. King & Associates, that she also owns while trading on behalf of hedge fund PCM Partners LP II, without disclosing the conflicts of interest.
An SEC investigation found Paradigm engaged in at least 83 transactions from 2009 to 2011 to reduce PCM Partners' tax liability by offsetting gains by selling securities with unrealized losses and repurchasing some.
Paradigm and Ms. Weir agreed to distribute $1.7 million to current and former hedge fund investors, plus a penalty of $300,000 and prejudgment interest of $181,771. Paradigm also agreed to retain an independent compliance consultant to address its procedures for handling conflicts of interest.
After Paradigm's head trader reported the activity to the SEC, he faced retaliation by the firm, according to SEC officials.
“We are pleased to resolve this matter and have it behind us,” a Paradigm spokesman said in an e-mailed response to a request for comment.