Brokerage Firm Fined for Preventing Clients from Reporting Securities Violations

Financial advisers must follow strict laws. When they don’t and clients are harmed, full restitution is warranted. However, this is not the end of the story. Brokerage firms and other institutions are also subject to regulatory actions, and possibly even criminal charges, for their violations. Furthermore, they cannot pay victimized clients to keep them from reporting what happened to authorities. 

This was demonstrated by a recent enforcement action conducted by the U.S. Securities and Exchange Commission (SEC) against Nationwide Planning Associates, Inc. (NPA), a New Jersey-based investment advisory firm, and two affiliated companies. In the case, the SEC alleged that NPA violated whistleblower protection rules by compelling 11 brokerage customers and advisory clients to sign nondisclosure agreements. The language in these documents conditioned payments to their accounts on their promise not to contact the SEC regarding what occurred. 

Under Rule 21F-17 of the Securities Exchange Act, employers are prohibited from blocking individuals from communicating with the SEC about potential securities violations. To settle the action, NPA and its affiliates paid the government $240,000. In a statement, Corey Schuster of the SEC noted the importance of removing any impediments that would keep someone from informing regulators about possible legal violations.

Clients of investment groups are not the only people who are sometimes pressured into remaining silent when SEC rules are broken. Many financial firms have included nondisclosure language in the severance agreements given to departing employees. Blocking current or former employees from acting as whistleblowers is illegal. Moreover, the Dodd-Frank Act offers incentives to whistleblowers who notify the SEC of wrongdoing. Since the institution of this program, more than $1 billion has been awarded. 

Securities fraud threatens the integrity of the American financial system. Victims and fellow employees often have the information needed to help the SEC enforce the law and hold violators liable for their misconduct. When you have knowledge of someone breaking the rules that govern financial transactions, speaking to the one of the experienced attorneys at Kardell Law Group is a good first step. You can count us on for honest counsel regarding your legal options and determined advocacy if you have a claim for whistleblower compensation.