The SEC, J.P. Morgan Securities LLC (JPMS) and J.P. Morgan Investment Management (JPMIM) have agreed to a substantial settlement following a series of violations.
The firms will pay over $151m in civil penalties and voluntary payments to resolve allegations of misleading disclosures and breaches of fiduciary duty among other failures, without admitting or denying the SEC’s findings.
The SEC has detailed various infractions across multiple JP Morgan business lines that purportedly put investors at risk. These include misleading disclosures related to the JPMS’s Conduit private funds, failures in managing conflicts of interest, prohibited joint transactions, and unsuitable recommendations of investment products. Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement, emphasized that this comprehensive settlement underscores JP Morgan’s accountability for its regulatory oversights.
One notable component of the settlement involves the Conduit private funds, where JPMS allegedly made misleading disclosures to its brokerage customers. According to the SEC, a JP Morgan affiliate exercised unchecked discretion over significant investment decisions, exposing investors to market risks that led to substantial losses. To rectify this, JPMS will compensate affected investors with a $90m voluntary payment and an additional $10m civil penalty.
Further investigations revealed that from 2017 to 2024, JPMS failed to disclose financial incentives that could have swayed advisors to favor JPMS’s own Portfolio Management Program over competing products, resulting in asset growth from $10.5bn to over $30bn. This has resulted in a $45m penalty imposed by the SEC.
The firm also faced scrutiny for recommending Clone Mutual Funds over cheaper ETFs that offered the same portfolios, which the SEC regarded as failing to prioritize customer interests over cost considerations. Although JPMS has repaid approximately $15.2m to impacted customers, no additional penalty was imposed due to their proactive cooperation with the investigation.
In separate actions, JPMIM was fined $5m for unauthorized joint transactions and $1m for principal trades that did not adhere to conflict-of-interest regulations, despite the firm’s voluntary disclosures to the SEC.
These settlements form part of the SEC’s broader efforts to ensure compliance and protect investors in the increasingly complex financial markets. JP Morgan’s cooperation in the investigations and their commitment to rectifying the cited issues have been acknowledged by the regulatory body.
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