Is3350 Unit 1 Assignment 1

Assignment 1: Whistleblowing and Sarbanes Oxley
By: Grace Robinson
Legal 500 Law Ethics and Corporate Governance
Professor Dr. Michael T. Hanners
1/25/15

Introduction
James Nordgaard was the head trader at Paradigm Capital Management and C.L King & Associates. His role was to trade institutional and hedge fund products. Paradigm is a New York based investment fund founded by Candace King Weir. She also owns C.L. King. C.L. King is a broker-dealer firm. James Nordgaard informed his management of a conflict of interest and a compliance violation between the two companies. Management decided to do nothing about James’ discovery. James had to decide what to do next. Should he have loyalty to Paradigm or loyalty to his professional
code of conduct? Would James Nordgaard be justified in reporting the company? What protection will he have if he became a whistleblower?
In 2002, Congress passed the Sarbanes-Oxley Act (SOX) (Halbert & Ingulli, 2012).
This act was established to prevent publically traded company fraud. This law came to pass because of the housing and economic crisis. The only problem was encouraging employees to report the fraud. The Whistleblower Protection Act of 1989 was amended to encourage employees (U.S. Securities and Exchange Comission, 2014). Whistleblowers are employees who decide to report unethical or illegal activities (Halbert & Ingulli, 2012). The Whistleblower Protection Act provides protection from company retaliation against employees who report misconduct and fraud (National Science Foundation, 2014). The law also promises between 10 to 30 percent of any fines that are $1 million or
more.
Paradigm and C.L King had a significant conflict of interest. The two companies shared the same CFO. Because of this conflict, the company is required to disclose it to its clients. The company never published this information and instead came up with a trading strategy to reduce the tax liabilities of the firm’s investors (Stevenson, 2014). The head trader, James Nordgaard, discovered the compliance violation. He explained it to his management team, and they brushed it under the carpet. After realizing management’s decision, James reported the issue to the United States Securities Exchange Commission (SEC). Although he reported Paradigm to the SEC, he felt an obligation to inform Paradigm of his decision. The company asked James to resign, and management began to prepare for the SEC’s investigation. James decided not to resign because he was justified in his actions.
James was justified in reporting the compliance violation to the SEC because it is ethical.
The Enron scandal is a big reason the United States’ economy had a meltdown. James did his part in preventing another scandal. He also showed management loyalty by giving them a chance to fix the problem on their own. Management most likely didn’t do anything because James had more to lose if he did report them.
The Sarbanes-Oxley Act provides some protection to whistleblowers to reduce the loss. The anti-retaliation provision was added to the Sarbanes-Oxley Act to penalize an employer for discharging, demoting, suspending, harassing, or otherwise discriminating against an employee for reporting potential violations to the SEC (Deakins, Campbell, & Ferrantella, 2014).
The SEC decided to enforce this provision for the first time for the James Nordgaard. Because James decided against resigning, the company retaliated against him (Deakins, Campbell, & Ferrantella, 2014). The company took away his rights to trade and access to the company’s system. James couldn’t even get into his email. They moved him into a little room and eventually found a way to accuse him of violating the company’s confidentiality agreement. On August17, 2012, James resigned, and he sued the company for violating his
rights.
After the investigation, the SEC found that Paradigm Capital did not have a legitimate reason for removing James from his position and stripping him of his supervisory responsibilities (Deakins, Campbell, & Ferrantella, 2014). Paradigm Capital was fined 1.7 million in disgorgement, $300,000 in civil penalties, and $181,000 in pre-judgment interests to resolve the dispute (Deakins, Campbell, & Ferrantella, 2014).
In conclusion, James Nordgaard did the ethical thing by reporting the violation. However, he was hurt by his decision in the end. Although he received civil penalties, he can’t live off of that. According to James’ LinkedIn profile, he has not worked for another company since the lawsuit. He is blacklisted on the employment market.

References
Deakins, O., Campbell, M. H., & Ferrantella, J. C. (2014, August 7). Lexology. Retrieved from SEC Brings First Whistleblower Anti-retaliation Enforcement Action: http://www.lexology.com/library/detail.aspx?g=9945fce5-2e32-48f1-a722-0de3f26f881e
Halbert, T., & Ingulli, E. (2012). Law and Ethics in the Business Environment (7th Ed.
National Science Foundation. (2014). What is the Whistleblower Act? Retrieved from Office of Investigations Office of Audit: https://www.nsf.gov/oig/telloig.pdf
Stevenson, A. (2014, June 17). Hedge Fund to Pay $2.2m Fine for Whistle-blower’s Demotion. Retrieved from New York Times: http://www.bostonglobe.com/business/2014/06/16/sec-fines-hedge-fund-demotion-employee/yXVRwfdnIP337GtNNps98H/story.html
U.S. Securities and Exchange Comission. (2014, December 11). Office of the Whistleblower. Retrieved from U.S. Securities and Exchange Comission: https://www.sec.gov/whistleblower
Weinstein, M., Meyer, R., & Clark, J. (2014, June 23). Paradigm Capital Pays Over $2 Million in First Ever SEC Whistleblower Retaliation Enforcement Action. Retrieved from Willkie Farr & Gallagher LLP: http://www.willkie.com/~/media/Files/Publications/2014/06/Paradigm_Capital_Pays_Over_2_Million.pdf