ALBANY, N.Y. (AP) – The state’s top court on Tuesday upheld the firing of a hedge fund compliance officer who said he confronted its chief executive about improperly selling personal stock before doing the same for clients.
The Court of Appeals ruled 5-2 in rejecting Joseph Sullivan’s damages claim against Peconic Partners, Peconic Asset Management and fund President William Harnisch.
The majority said New York common law generally gives an employer the “unimpaired” right to fire an at-will employee at any time, absent a violation of the constitution, a statute or a contract. It said there is no exception for the discharge of a hedge fund’s compliance officer, the person responsible for the firm’s adherence to securities laws and regulations.
“It is beyond dispute that compliance with extensive federal regulations _ overseen, at firms like Peconic, by compliance officers _ is an integral part of the securities business,” Judge Robert Smith wrote.
But, Smith wrote, those federal regulations don’t give state law any more power to punish employers who fire at-will employees.
Congress can change that, and did somewhat with the Dodd-Frank act in 2010, Smith wrote. The law provides protection for whistleblowers to the Securities and Exchange Commission who, if consequently fired, can sue for double back pay. The judge noted that wouldn’t apply to Sullivan, who claims to have confronted Harnisch but didn’t tell the SEC.
Judges Victoria Graffeo, Susan Read, Eugene Pigott Jr. and Theodore Jones Jr. agreed with Smith.
The two dissenters, Chief Judge Jonathan Lippman and Judge Carmen Beauchamp Ciparick, said the court should expand an existing exception provided to lawyers who get fired for insisting on professional ethics. They said Tuesday’s ruling “facilitates the perpetuation of frauds” in the securities industry.
“The message that will be taken from the majority’s decision is self-evident: if compliance officers (and others similarly situated) wish to keep their jobs, they should keep their heads down and ignore good-faith suspicions or evidence they may have that their employers have engaged in illegal and unethical behavior, even where such violations could cause or have caused staggering losses to their employers’ clients,” Lippman wrote.
Sullivan was also a 15 percent partner, treasurer and chief operating officer for Peconic. He was fired in 2008 after a dispute with majority owner Harnisch. He claimed he was wrongfully terminated after raising objections that Harnisch was “front-running,” with stock sales from his and his family’s personal accounts in anticipation of client transactions.
Harnisch’s attorney, Y. David Scharf, said the SEC and National Futures Association both examined the claims of Sullivan and took no negative action. The company said Sullivan was a disgruntled fired employee.
“It’s been looked at, it’s been vetted. Nothing went on that was nefarious or anything of that nature,” he said.
Attorney Daniel Felber, who represented Sullivan, said they hope Lippman’s dissent will one day become the law.
“To rely on the SEC is really not putting any teeth into enforcement,” he said.
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