JPMorgan Chase Faces SEC Charges on Investor Protection Violations, Fined $151M
A settlement agreement between the U.S. Securities and Exchange Commission and affiliates of JPMorgan Chase & Co. over five enforcement proceedings was announced on October 31.
These cases concerned JPMorgan Chase subsidiaries J.P. Morgan Securities LLC (JPMS) and J.P. Morgan Investment Management Inc. (JPMIM). The SEC imposed severe penalties after discovering that these organizations had broken several investor protection regulations.
https://twitter.com/ReutersBiz/status/1852171907170193485
JPMorgan consented to pay an overall of $151 million, which included the amount of $61 million in fines and $90 million in refunds to impacted investors, without acknowledging or disputing the findings.
Important Cases and Sanctions
- Misrepresentation of Conduit Private Funds: The majority of the settlement focuses on JPMS’s false disclosures to brokerage clients regarding its Conduit private funds. These funds combined customer funds to invest in hedge funds and private equity, which subsequently gave investors shares of recently listed businesses. Investors were exposed to high market risks because, in contrast to information disclosures, a JPMorgan affiliate had complete control over the quantity and timing of shares sold. As a result, the value of the shares frequently decreased as JPMorgan delayed months to sell them. A $10 million civil penalty and a $90 million reimbursement to more than 1,500 impacted Conduit fund investors were levied by the SEC on JPMS.
- Portfolio Management Program: JPMS is accused of failing to disclose its financial incentives for favoring its in-house Portfolio Management Program above alternatives offered by third parties between July 2017 and October 2024. JPMS was able to increase fees without having to split profits with outside managers because to this decision. The SEC fined the company $45 million after finding that the absence of disclosure had betrayed investor confidence.
- Overcharge on Clone Mutual Funds: Despite the availability of identical, less expensive ETF alternatives, JPMS recommended investing in its Clone Mutual Funds to retail brokerage clients between June 2020 and July 2022. About 10,500 customers purchased these more expensive funds on JPMS’s advice. Despite JPMS’s voluntary repayment of $15.2 million to affected investors following self-reporting, the SEC gave a cease-and-desist order and a reprimand without imposing additional financial penalties.
- Joint Transactions Favoring Foreign Affiliates: In March 2020, JPMIM was discovered to have engaged in $4.3 billion in illegal joint transactions that favored a foreign affiliate over U.S. money market mutual funds it also advised. At the end of this lawsuit, JPMIM agreed to pay a $5 million fine.
- Principal Trades Violations: JPMIM carried out 65 unlawful major deals from July 2019 to March 2021, totaling $8.2 billion. These transactions, which took place without the required SEC authorization, involved a JPMIM portfolio manager purchasing assets from JPMS for client portfolios through an outside broker. The SEC issued a censure, a cease-and-desist order, and a $1 million penalties.
Regulatory Responsibility and the Reaction of JPMorgan
Acting Director of the SEC’s Enforcement Division Sanjay Wadhwa stated that JPMorgan’s conduct were against many regulations intended to shield investors from disputes of interest. According to him, the settlements show a great deal of accountability because JPMorgan self-reported problems in multiple instances and made voluntary payments.
JPMorgan expressed satisfaction with the issues’ resolution and reaffirmed its dedication to providing high standards of client service worldwide. One of the company’s representatives highlighted JPMorgan’s proactive strategy for spotting and fixing issues as they appear.
This settlement is JPMorgan Chase’s most recent enforcement action pertaining to investor protection concerns. The bank made a $267 million payment in a prior lawsuit almost ten years ago after acknowledging that it had directed customers to its internal funds without declaring conflicts of interest.
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