JPMorgan Chase has agreed to pay $151 million to resolve five enforcement actions initiated by the U.S. Securities and Exchange Commission, which include allegations that the bank's affiliates misled its brokerage customers with inaccurate disclosures, as announced by the regulator on Thursday.
The SEC has also charged the bank of breaching its fiduciary duty, engaging in prohibited joint transactions and principal trades, and failing to make recommendations that serve the best interests of its customers. These charges are against JPMorgan's two subsidiaries, J.P. Morgan Securities LLC (JPMS) and J.P. Morgan Investment Management Inc. (JPMIM).
"JP Morgan's conduct across multiple business lines violated various laws designed to protect investors from the risks of self-dealing and conflicts of interest," Sanjay Wadhwa, Acting Director of the SEC's Division of Enforcement, stated.
"With today's settlements, which include multiple self-reports and large voluntary payments to harmed investors, JP Morgan is being held accountable for its regulatory failures."
The two subsidiaries will pay $61 million in total civil penalties and $90 million of reimbursement to investors to resolve four of the actions, without admitting or denying the SEC's findings. In one case concerning JPMS, the SEC opted not to impose a penalty because the company cooperated with the investigation and took corrective actions.
The SEC's order says that JPMS gave false information to brokerage customers who invested in its "Conduit" private funds, which collected money to invest in private equity or hedge funds. To settle this issue, JPMS will pay $90 million as reimbursement and an additional $10 million penalty to more than 1,500 conduit investors.
Between July 2017 and October 2024, JPMS failed to reveal the incentive the bank and its advisors received when recommending their Portfolio Management Program over third-party managed advisory programs. During this period, their assets grew from approximately $10.5 billion to more than $30 billion. The SEC has imposed a penalty of $45 million against this charge.
The SEC finds that between June 2020 and July 2022, JPMS recommended Clone Mutual Funds to its retail customers despite cheaper ETF options were available. About 10,500 customers bought these Clone Mutual Funds based on JPMS's advice. JPMS and its representatives did not consider the cost differences nor have a reasonable basis to believe their recommendations were best for customers, the order points out.
The SEC, however, did not impose a penalty as the bank reported the issue immediately, held an internal investigation and reimbursed the affected customers nearly $15.2 million.
In March 2020, JPMIM engaged in $4.3 billion of joint transactions that were not allowed. These transactions benefited a foreign money market fund that JPMIM managed, giving it an advantage over three U.S. money market mutual funds that JPMIM also advised. The SEC has ordered a civil penalty of $5 million.
Additionally, SEC finds JPMIM conducted 65 prohibited principal trades with a total value of around $8.2 billion between July 2019 and March 2021, which fetched a $1 million civil penalty. Principal trades are generally prohibited to avoid undisclosed conflicts of interest unless certain conditions are met or the SEC provides exemptive relief.
Expressing satisfaction with the settlement and its commitment to addressing issues as they arise, the New York-based bank stated, it "strives to uphold the highest standards in client service."
