JPMorgan Chase Affiliates to Pay $151 Million in SEC Enforcement Fines
On October 31, the U.S. Securities and Exchange Commission (SEC) resolved five separate enforcement actions against J.P. Morgan Securities LLC (JPMS) and J.P. Morgan Investment Management, Inc. (JPMIM) with an agreement by the entities to pay $151 in civil penalties and voluntary payments to investors to resolve four of the actions, with the fifth dismissed as JPMS cooperated in the investigations and undertook remedial measures.1 Through this resolution the JPMorgan affiliate companies neither admitted nor denied the SEC findings. The enforcement actions were instituted for “misleading disclosures to investors, breach of fiduciary duty, prohibited joint transactions and principal trades, and failures to make recommendation in the best interest of customers.”2
Three enforcement actions involved JPMS and two involved JPMIM, with one action against JPMS dismissed. In the action that was dismissed — a Clone Mutual Funds action — JPMS violated Regulation Best Interest by recommending Clone Mutual Funds to approximately 10,500 retail brokerage customers from June 2020 to July 2022 when less expensive ETF products offering the same investment portfolios were available. No civil penalties were imposed as JPMS reported the issue to the SEC, did an internal investigation and voluntarily repaid $15.2 million to impacted customers.
The other two enforcement actions that were not dismissed against JPMS were a Conduit Private Funds action and a Portfolio Management Programs action. In the Conduit Private Funds action the SEC alleged that JPMS made misleading disclosures to brokerage customers who invested in the company’s “Conduit” private funds products, subjecting investors to market risk and a decline in share value based on the length of time it took JPMS to sell the shares. JPMS will make a voluntary payment of $90 million to more than 1,500 Conduit investors and pay a civil penalty of $10 million to Conduit investors. In the Portfolio Management Programs action the SEC alleged that JPMS grew assets under management from $10.5 billion to more than $30 billion while not fully and fairly disclosing the financial incentive the company and some of its financial advisors received between July 2017 and October 2024. The SEC imposed a cease-and0desist order, censure and a $45 million penalty for this action.
The actions against JPMIM included a Principal Trades Action where the SEC alleged that JPMIM engaged in or caused 65 prohibited principal trades involving undisclosed conflicts of interest, valued at $8.2 billion collectively from July 2019 through March 2021. A cease-and-desist order was imposed by the SEC as well as censure and a $1 million civil penalty. The second action against JPMIM was a Joint Transactions Action where the SEC alleged that in March 2020 JPMIM “caused $4.3 billion in prohibited joint transactions, which advantaged an affiliated foreign money market fund for which it served as the delegated portfolio manager over three U.S. money market mutual funds it advised.”3 The SEC imposed a $5 million civil penalty as well as a cease-and-desist order.
In an email statement made to InvestmentNews a JPMorgan spokesperson said the firm “strives to uphold the highest standards in client service around the world. When issues are identified we fix them and engage with our regulators to resolve any concerns.”4
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1,2, 3 Press Release: JP Morgan Affiliates to Pay $151 Million to Resolve SEC Enforcement Actions, 10/31/2024
Link: https://www.sec.gov/newsroom/press-releases/2024-178
4 JPMorgan to pay $151M in SEC Enforcement Blitz by Leo Almazora, 10/31/2024
Link: https://www.investmentnews.com/regulation-and-legislation/jpmorgan-to-pay-151m-in-sec-enforcement-blitz/258003