A New Jersey-based broker-dealer and two affiliated registered investment advisor (RIA) firms have agreed to pay a total of $240,000 in penalties to settle charges stemming from allegations that they had nearly a dozen clients sign confidentiality agreements preventing them from reporting potential securities law violations to regulators.
"Investors must have the ability to report complaints or evidence of wrongdoing to the SEC without facing any barriers," said Corey Schuster, co-chief of the SEC Enforcement Division’s asset management unit. "We will continue to hold firms accountable when they attempt to impede that communication."
Between May 2021 and February 2024, Nationwide Planning Associates, along with its affiliated RIAs—NPA Asset Management and Blue Point Strategic Wealth Management—allegedly violated the Securities and Exchange Commission's whistle-blower protection rule, which prohibits actions that hinder individuals from contacting regulators about potential misconduct.
The SEC’s allegations focus on confidentiality agreements signed by 11 clients. These agreements were reportedly presented after the firms had credited the clients' investment accounts to offset losses from activities that may have violated securities laws. The SEC claims these agreements restricted the clients from proactively reporting concerns to regulators, even though the agreements didn’t prevent clients from responding to regulator inquiries if contacted.
In a settlement with the SEC, the firms accepted the fines and a formal censure without admitting or denying the allegations. The firms did not provide immediate comment when contacted by phone and email.
The SEC recognized the firms’ cooperation during the investigation and their subsequent remedial efforts, which included sending letters to affected clients informing them that they were free to communicate with regulators about any concerns. Despite these efforts, the SEC maintained that it will not tolerate any attempts to discourage whistle-blowing or hinder investor communication with authorities.
The case draws parallels to a prior SEC action involving J.P. Morgan Securities. In January, J.P. Morgan settled with the SEC for $18 million over similar allegations, where clients receiving credits or settlement payments were asked to sign confidentiality agreements preventing them from reaching out to regulators. The SEC’s message was clear at the time: "Whether it’s in your employment contracts, settlement agreements, or elsewhere, you cannot include provisions that prevent individuals from contacting the SEC with evidence of wrongdoing,” said Gurbir Grewal, Director of the SEC’s Enforcement Division.
In the Nationwide case, the penalties were distributed among the three entities involved, based on their size and financial standing. Nationwide Planning Associates, registered with the SEC as an RIA with $883 million in assets under management, agreed to pay $160,000. The broker-dealer arm, Nationwide, agreed to pay $70,000. Blue Point Strategic Wealth Management, a smaller RIA registered with New Jersey state regulators, agreed to pay $10,000.
For RIAs and wealth advisors, this case serves as a critical reminder of the importance of compliance with whistle-blower protections. Any attempt to stifle communication between clients and regulators can lead to significant legal and financial consequences, as demonstrated by the SEC's enforcement actions. Firms must ensure that their agreements—whether settlement-related or otherwise—do not violate SEC rules or impede transparency with regulators. Additionally, proactive compliance measures, such as reviewing and amending existing client agreements, can help avoid potential regulatory scrutiny and fines.
In this regulatory environment, it’s crucial for wealth advisors to not only uphold their fiduciary responsibilities but also foster a culture of openness and transparency. Clients must feel empowered to raise concerns about potential misconduct without fear of retribution or contractual restrictions. The SEC’s increasing focus on whistle-blower protection reinforces the agency’s commitment to maintaining market integrity and safeguarding investor rights, and wealth advisors must ensure they are fully aligned with these regulatory priorities to avoid similar penalties in the future.
