The Securities and Exchange Commission on Wednesday hit a New Jersey broker-dealer with a $240,000 penalty for working to block clients from reporting investment losses stemming from potential violations of securities laws.
The firm, Nationwide Planning Associates Inc. of Fair Lawn, along with two registered investment advisor affiliates, agreed to the SEC’s settlement without admitting or denying the SEC’s findings in the matter. Michael Karalewich, CEO of Nationwide Planning Associates, did not return a phone call Thursday morning to comment.
“You can’t put any language in an agreement that would prevent a client from reporting a broker-dealer’s actions to a regulator or law enforcement agency of any kind,” said Ryan Bakhtiari, a plaintiff’s attorney. “That’s a major no-no.”
“Any outside or in-house counsel would know that rules preventing this are not anything news,” Bakhtiari said. “This is shocking.”
“Maybe 20 years ago a firm could have gotten away with this, but now everybody in the industry knows this is strictly forbidden,” he added. With that in mind, why would a firm engage in this kind of behavior? If there’s smoke, where’s the fire?”
From May 2021 through February 2024, Nationwide Planning Associates and the two RIAs, NPA Asset Management, with $882 in client assets and Blue Point Strategic Wealth Management, with $14 million, asked 11 brokerage customers and advisory clients “to sign confidentiality agreements in connection with compensatory payments authorized by [the firms] to be made to the clients’ investment accounts,” according to the SEC.
From the settlement, it is not clear what potential violations of securities laws may or may not have occurred at Nationwide Planning Associates. Instead, the SEC’s settlement focuses on the firm’s attempts to quash clients’ potential communication with regulators.
The Nationwide Planning Associates’ agreements with clients contained provisions that impeded clients from reporting potential securities law violations to the SEC or any other federal, state, or self-regulatory securities commission or authority, permitting communication only where the SEC or other regulator first initiated an inquiry.
Some of the agreements further required the clients to represent that they had not reported the underlying dispute to the SEC or to another securities regulator and would forever refrain from such reporting, according to the SEC. Those types of requirements violate whistleblower rules and protections that were part of the 2011 Dodd-Frank Wall Street Reform and Consumer Protection Act.
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