Paradigm Capital Management, Inc.

Allegations: ADVISORY AFFILIATES ARE REGISTERED THROUGH THE IARD SYSTEM OR CRD SYSTEM AND THE ADVISORY AFFILIATES SUBMITTED A DRP. Status: Final Sanction Detail: ADVISORY AFFILIATES ARE REGISTERED THROUGH THE IARD SYSTEM OR CRD SYSTEM AND THE ADVISORY AFFILIATES SUBMITTED A DRP. Summary: ADVISORY AFFILIATES ARE REGISTERED THROUGH THE IARD SYSTEM OR CRD SYSTEM AND THE ADVISORY AFFILIATES SUBMITTED A DRP.

Allegations: THE SEC ALLEGED THAT PARADIGM ENGAGED IN PRINCIPAL TRANSACTIONS WITHOUT EFFECTIVE DISCLOSURE TO OR CONSENT FROM A HEDGE FUND CLIENT AND THAT PARADIGM RETALIATED AGAINST AN EMPLOYEE, IN VIOLATION OF SECTIONS 206(3) AND 207 OF THE ADVISERS ACT AND SECTION 21F(H) OF THE EXCHANGE ACT, RESPECTIVELY. Status: Final Sanction Detail: DISGORGEMENT: $1,700,000 / PREJUDGMENT INTEREST: $181,771 / CIVIL PENALTY $300,000 / TOTAL: $2,181,771. THE AMOUNT OF $481,771 WAS PAID ON JUNE 27, 2014. FROM 6/16/2014: WITHIN 60 DAYS, $1,700,000 DISTRIBUTED; WITHIN 90 DAYS, ACCOUNTING TO SEC; WITHIN 30 DAYS, RETENTION OF INDEPENDENT COMPLIANCE CONSULTANT; 180, 210 DAYS REPORT TO SEC; ONGOING RECORDKEEPING. Summary: WITHOUT ADMITTING OR DENYING THE SEC'S ALLEGATIONS, PARADIGM CONSENTED TO THE ENTRY OF AN ORDER FINDING THAT IT VIOLATED SECTION 206(3) AND 207 OF THE ADVISERS ACT AND SECTION 21F(H) OF THE EXCHANGE ACT. PARADIGM ESTABLISHED A CONFLICTS COMMITTEE TO COMPLY WITH SECTION 206(3)'S DISCLOSURE AND CONSENT REQUIREMENTS FOR PRINCIPAL TRANSACTIONS BETWEEN A PARADIGM-MANAGED HEDGE FUND AND AN AFFILIATED BROKER-DEALER, BUT THE SEC FOUND THAT COMMITTEE DEFICIENT BECAUSE ONE OF ITS MEMBERS WAS ALSO AN EMPLOYEE OF THE BROKER-DEALER. SO, WITHOUT SUGGESTING THAT PARADIGM EVER ACTED OTHER THAN IN THE BEST INTERESTS OF ITS INVESTORS, THE SEC NONETHELESS FOUND THE PRINCIPAL TRADES WERE MADE WITHOUT EFFECTIVE DISCLOSURE TO, OR CONSENT FROM, THE FUND. PARADIGM AGREED TO CERTAIN UNDERTAKINGS AS PART OF THE SETTLEMENT, INCLUDING ENGAGING AN OUTSIDE COMPLIANCE CONSULTANT AND DISGORGEMENT IN THE FORM OF A DISTRIBUTION TO ELIGIBLE INVESTORS IN THE FUND. THE SEC FURTHER ALLEGED THAT PARADIGM RETALIATED AGAINST AN EMPLOYEE, RESULTING IN HIS RESIGNATION. PARADIGM'S MAJORITY OWNER, CANDACE KING WEIR, WITHOUT ADMITTING OR DENYING THE ALLEGATIONS, CONSENTED TO THE ENTRY OF AN ORDER FINDING THAT SHE CAUSED PARADIGM'S VIOLATION OF SECTION 206(3).