The US Securities and Exchange Commission (SEC) has initiated its latest round of charges against a prominent bank, in this case, targeting JP Morgan Securities LLC (JPMS).
The company will have to pay an $18m civil penalty to the SEC for ‘impending hundreds of advisory clients and brokerage customers’ from reporting potential securities law violations between March 2020 and July 2023.
According to SEC allegations, JPMS asked retail clients to sign a confidentiality statement if the companies in question had been issued a credit or settlement from the firm in excess of $1,000.
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, said: “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.
“But that’s exactly what we allege J.P. Morgan did here. For several years, it forced certain clients into the untenable position of choosing between receiving settlements or credits from the firm and reporting potential securities law violations to the SEC.
“This either-or proposition not only undermined critical investor protections and placed investors at risk, but was also illegal.”
In addition, the confidentiality agreements did not permit clients to voluntarily contact the SEC, although they could respond to the regulator’s inquiries – a violation of the SEC’s rules around whistleblower protection.
Corey Schuster, Co-Chief of the Enforcement Division’s Asset Management Unit, added: “Investors, whether retail or otherwise, must be free to report complaints to the SEC without any interference. Those drafting or using confidentiality agreements need to ensure that they do not include provisions that impede potential whistleblowers.”
The charges against JPMS – a securities trading subdivision of JPMorgan Chase Co., the largest bank in the US and one of the biggest globally – is the latest case of the SEC taking enforcement action against a major financial institution in as many weeks.
Last Friday, Morgan Stanley was ordered to pay a much heftier sum of $249m, and the former Head of its Equity Syndicate Desk, Pawan Passi, was told to pay $250,000, after a case of multi-year block trading fraud.