J.P. Morgan Securities LLC (JPMS), a subsidiary of J.P Morgan, has agreed to a significant $18m civil penalty in a settlement with the SEC.
The regulatory body’s enforcement action marks a stern rebuke against practices that potentially muzzle whistleblowers, a cornerstone for maintaining transparency and ethical conduct in the financial sector. The SEC’s findings reveal that from March 2020 through July 2023, JPMS consistently pressured retail clients into signing confidential release agreements post receiving credits or settlements exceeding $1,000.
These agreements effectively gagged clients from discussing the settlement details, the underlying facts, and specifics about the involved accounts. Notably, the contracts allowed responses to SEC inquiries but explicitly barred voluntary communications with the regulator, stifling the clients’ ability to report potential securities law violations.
SEC’s Division of Enforcement Director Gurbir S. Grewal sternly criticized the bank’s practices, stating, “Whether it’s in your employment contracts, settlement agreements or elsewhere, you simply cannot include provisions that prevent individuals from contacting the SEC with evidence of wrongdoing.” He underscored the grave nature of JPMS’s actions, emphasizing that such practices place investors at substantial risk and erode crucial investor protections.
Corey Schuster, Co-Chief of the SEC’s Asset Management Unit, echoed these sentiments, highlighting the paramount importance of ensuring that confidentiality agreements do not hinder potential whistleblowers. He firmly stated that investors, retail or otherwise, must have unobstructed freedom to lodge complaints with the SEC.
JPMS, while neither admitting nor denying the allegations, has consented to be censured and to cease any further violations of the SEC’s whistleblower protection rule, Rule 21F-17(a), under the Securities Exchange Act of 1934. This rule stands as a bulwark against any actions that could deter individuals from communicating directly with the SEC about potential securities law violations.
This settlement underscores the SEC’s unwavering commitment to safeguarding the integrity of the financial markets and the rights of individuals to report wrongdoing without fear of retribution.
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