J.P. Morgan will pay $307 million to settle charges brought against investment advisory business J.P. Morgan Securities and J.P. Morgan Chase Bank for not disclosing to clients its preferences for proprietary investment products, federal regulators said Friday.
“This case is about J.P. Morgan’s repeated refusal to disclose conflicts of interest,” SEC Enforcement Director Andrew Ceresney said on a press briefing call. “We have not alleged any intentionality on the part of the bank. What we do allege is that they were negligent,” Mr. Ceresney said.
According to the Securities and Exchange Commission order, both subsidiaries preferred to invest high-net-worth clients in the firm’s own proprietary investment products, including a more expensive share class of proprietary mutual funds, and third-party-managed hedge funds that paid placement agent fees to a J.P. Morgan affiliate. The activities cited in the order were from 2008 to 2013 for the investment advisory business, and 2008 to 2014 for the bank.
“Clients are entitled to know whether their adviser has competing interests that might cause it to render self-interested investment advice,” said Julie Riewe, co-chief of the SEC enforcement division’s asset management unit, in a statement.
In addition to admitting wrongdoing, J.P. Morgan will pay the SEC $127.5 million in disgorgement, $11.8 million in prejudgment interest, and a $127.5 million penalty. J.P. Morgan Chase Bank will pay an additional $40 million penalty to the Commodity Futures Trading Commission, which credited $60 million in disgorgement for the amounts paid to the SEC.
J.P. Morgan spokeswoman Kristen Chambers said in an e-mailed statement that the disclosure weaknesses cited in the settlements “were not intentional and we regret them. We have always strived for full transparency in client communications, and in the last two years have further enhanced our disclosures in support of that goal.”
A J.P. Morgan executive brought the bank’s wrongdoing to the attention of the SEC and cooperated in the agency’s investigation. The executive’s attorney, Jordan Thomas of law firm Labaton Sucharow, said his client “believed the best way to protect J.P. Morgan clients and improve the sales culture of the organization — while avoiding retaliation and blacklisting — was to report these violations to the SEC.”
J.P. Morgan was granted a five-year conditional waiver from automatic disqualification as an SEC registrant. The waiver requires J.P. Morgan to hire an independent compliance consultant, extensive involvement by senior executives, notification of current and future clients and annual reports that will be published on the SEC website.
