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