A. Alleged Violations of Whistleblower Protections

The core issue in this matter revolves around the Respondents’ alleged violations of whistleblower protections under Exchange Act Rule 21F-17(a). According to the SEC, during the period from May 2021 to February 2024 (the “Relevant Period”), the Respondents asked eleven clients to sign confidentiality agreements linked to compensatory payments for losses in their investment accounts. These agreements included provisions that obstructed the clients from reporting potential securities law violations to the SEC or other regulatory authorities. The confidentiality agreements contained clauses that not only restricted clients from disclosing information about the disputes or payments but also imposed conditions that clients would only be able to report violations if initiated by the regulators. This effectively impeded clients from voluntarily communicating with the SEC about potential violations.

B. Regulatory framework.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 introduced Section 21F into the Exchange Act, which aimed to bolster whistleblower protections by offering financial incentives and confidentiality protections. Rule 21F-17, effective from August 12, 2011, specifically prohibits any actions that obstruct individuals from reporting potential securities law violations directly to the SEC, including enforcing confidentiality agreements that restrict such reporting.

C. Details of the Agreements and Alleged Violations

The Respondents utilized two main templates for their confidentiality agreements: the “Agreement” and the “Agreement and Release”. According to the SEC, both templates contained provisions that violated Rule 21F-17(a). Key problematic clauses included:

One paragraph restricted clients from discussing the terms of the agreement or the underlying dispute, even in response to inquiries from regulators, unless those inquiries were unsolicited and did not result from any action by the client.
Another paragraph required clients to affirm that they had not previously reported the dispute to any regulatory authority and pledged to refrain from doing so in the future. It also contained provisions providing only a limited carve-out for responding to unsolicited inquiries, thereby creating a reasonable impression that clients were discouraged from voluntarily reporting potential violations to regulators.
The confidentiality agreements created significant barriers for clients who might otherwise report securities law violations. The restrictive clauses not only limited the clients’ ability to report violations voluntarily but also imposed a misleading impression that reporting to the SEC was only permissible if initiated by the SEC itself.

D. Penalties Imposed

The SEC has imposed the following sanctions on the Respondents:

NPA Asset Management, LLC: A civil monetary penalty of $160,000.
Nationwide Planning Associates, Inc.: A civil monetary penalty of $70,000.
Blue Point Strategic Wealth Management, LLC: A civil monetary penalty of $10,000.
The SEC’s order further requires the Respondents to cease and desist from future violations of Rule 21F-17(a) and the Respondents to be censured.

E. Conclusion

The sanctions reflect the SEC’s emphasis on enforcing whistleblower protections ensuring that entities do not obstruct the reporting of securities law violations, and punishing securities firms for whistleblower violations. If you are aware of significant violations of securities laws or industry rules by a FINRA Broker-Dealer firm or a Registered Investment Advisor, please contact Scott Greco for a free securities fraud attorney consultation about the issues and any potential case or whistleblower action.

The alleged wrongdoing centered on the language included by J.P. Morgan in its settlement agreements with its advisory and brokerage firm customers to which it paid over $1,000.00. Virtually all FINRA securities firms and Registered Investment Advisors require a confidentiality clause to be included in any settlement agreement with a customer. These settlement agreements are often the result of various misconduct by the firms or their advisors, such as securities fraud, breach of fiduciary duty, unauthorized trading, broker theft, recommended unsuitable investments, and churning. The reason why securities firms always require their settlements to be confidential is clear – they wish to hide their misconduct and the misconduct of their advisors from the public. FINRA’s Brokercheck report does require firms to disclose settlements with advisors/firms, but the details are often extremely general, and one has to look up the broker directly to find the disclosures.

According to the SEC Order, from 2020 to 2023 J.P. Morgan included language in 362 release agreements that prohibited customers not only from disclosing the amount of the settlement to the SEC, but also prohibited disclosing the facts related to the account (i.e. the misconduct). Although the releases did allow disclosure to the SEC in response to an inquiry, it did not allow the customers to initiate contact with the SEC.

These actions allegedly violated the SEC protections for securities whistleblowers, and as stated by the SEC in the Order: “JPMS willfully violated Exchange Act Rule 21F-17(a), which prohibits any person from taking any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation.”

In addition to the fine, J.P.Morgan was required to advise its customers that they were allowed to contact the SEC directly.

If you were the victim of misconduct of a securities brokerage firm or financial advisor/broker resulting in the loss of your monies, please contact investment fraud attorney Scott Greco for a free attorney consultation about your potential case.