Trader Sues Employers for Retaliation Under Dodd-Frank Whistleblower Provisions

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By Yin Wilczek

In a lawsuit under the financial reform statute's whistleblower anti-retaliation provisions, a trader Sept. 10 alleged that he was forced to resign shortly after he told his Wall Street employers that he had disclosed trading violations to the Securities and Exchange Commission (Nordgaard v. Weir , S.D.N.Y., No. 1:12-cv-06843-DLC, 9/10/12).

In his complaint, filed in the U.S. District Court for the Southern District of New York, plaintiff James Nordgaard said his career came to an “abrupt end” a month after he told his employers--Paradigm Capital Management Inc. and C.L. King & Associates Inc.--that he had reported to the SEC that the firms were engaging in what he believed to be illegal trading activities.

“Defendants forced Mr. Nordgaard off the trading desk, literally and figuratively isolated him, limited his communications with co-workers and his access to business systems, and made it impossible for him to resume his trading responsibilities,” the complaint said. “Defendants constructively terminated Mr. Nordgaard's employment by retaliating against him and creating an intolerable work environment.”


Allegations Disputed
The firms told BNA in a joint statement that they are disputing the allegations. “We deny allegations of wrongdoing by Mr. Nordgaard, who has misinterpreted applications of our internal policy in an attempt to portray himself as a whistleblower," they said.

Nordgaard also named Candace King Weir in his lawsuit. Weir is the founder and president of Paradigm and C.L. King, which the complaint described as a “single integrated enterprise.”

Section 922(h) of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act allows whistleblowers who believe they have been suffered retaliation at the hands of their employers for reporting securities violations to sue the employers in federal court. However, although Section 922(h) has been available to whistleblowers since enactment of the financial reform legislation, there have been relatively few cases under the provision.

Nordgaard's counsel, Tammy Marzigliano, Outten & Golden LLP, New York, confirmed that her client's lawsuit is one of the first to be filed under Section 922(h). “I think it is important to note that before the Dodd-Frank Act, it was nearly impossible to obtain justice for a whistleblower employee who was retaliated against,” she said.

Given the lack of precedent, Nordgaard's lawsuit will touch on “uncharted” territory with respect to substantive issues, Marzigliano continued. “We are looking forward to litigating this case,” she told BNA.


Prior Action
Nordgaard's action follows on the heels of another lawsuit, brought in August by a former risk officer from Morgan Stanley & Co. Inc. (MS): Jagodzinski v. Morgan Stanley Smith Barney LLC, Docket No. 12-cv-5891 (DLC). In that action, also filed in the Southern District of New York, plaintiff Clifford Jagodzinski alleged that he was fired after reporting possible violations by the firm's registered representatives to his superiors.

Morgan Stanley, in a response filed Sept. 7, has denied the allegations. The firm maintains that Jagodzinski was fired because of “management dissatisfaction” with his performance “as a risk officer over a period of time.”

Meanwhile, such lawsuits generally have not fared well in the federal courts. For example, a client memorandum by Clifford Chance LLP referenced the April decision of Nollner v. Southern Baptist Convention Inc., which the law firm described as one of the first decisions to interpret Dodd-Frank's anti-retaliation provision. In that case, the U.S. District Court for the Middle District of Tennessee dismissed a whistleblower's anti-retaliation claim because his employer was not an issuer of securities.

Two months later, the U.S. District Court for the Southern District of Texas concluded that the anti-retaliation provision did not apply to a potential whistleblower in Jordan who allegedly was fired for reporting a possible Foreign Corrupt Practices Act violation: Asadi v. G.E. Energy (USA) LLC (131 SLD, 7/10/12).


SEC Authority
In its final rules to establish a whistleblower program (102 SLD, 5/26/11), the SEC stated that it too has the authority to bring a lawsuit or a proceeding to enforce Dodd-Frank's anti-retaliation provision (106 SLD, 6/2/11). SEC spokesman John Nester declined to comment for the article.

In the meantime, legal experts predict that more whistleblower employer retaliation lawsuits are on the horizon.

“Putting aside the merits, I anticipate there may be more of these types of lawsuits in the future for at least two reasons,” said Bradley Bondi, a Washington-based partner at Cadwalader, Wickersham & Taft LLP, and former counsel to two SEC commissioners.

“First, the Dodd-Frank Act expanded the time period to file a discrimination claim,” Bondi said. “Second, with the possibility of obtaining a large cash bounty from the SEC through the SEC's whistleblower bounty program, whistleblowers are becoming more sophisticated about their legal rights, often with the assistance of counsel."

By Yin Wilczek

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