The Securities and Exchange Commission announced that two J.P. Morgan wealth management subsidiaries have agreed to pay $267 million and admit wrongdoing to settle charges that they failed to disclose conflicts of interest to clients.
An SEC investigation found that the firm’s investment advisory business J.P. Morgan Securities (JPMS) and JPMorgan Chase Bank (JPMCB) preferred to invest clients in the firm’s own proprietary investment products without properly disclosing this preference. This preference impacted two fundamental aspects of money management – asset allocation and the selection of fund managers – and deprived JPMorgan’s clients of information they needed to make fully informed investment decisions.
In a parallel action, JPMCB agreed to pay an additional $40 million penalty to the U.S. Commodity Futures Trading Commission (CFTC).
“Firms have an obligation to communicate all conflicts so a client can fairly judge the investment advice they are receiving,” said Andrew J. Ceresney, director of the SEC Enforcement Division. “These J.P. Morgan subsidiaries failed to disclose that they preferred to invest client money in firm-managed mutual funds and hedge funds, and clients were denied all the facts to determine why investment decisions were being made by their investment advisers.”
According to the SEC’s order instituting a settled administrative proceeding, JPMS failed to disclose numerous conflicts of interest to certain wealth management clients from 2008 to 2013:
The SEC’s order also found that JPMCB failed to disclose several conflicts of interest to certain high net worth and ultra-high net worth clients of JPMorgan’s U.S. Private Bank and certain clients of Chase Private Client, who invested in J.P. Morgan Investment Portfolio, a discretionary managed account program available to affluent Chase Bank clients:
The SEC’s order finds that JPMS willfully violated Sections 206(2), 206(4) and 207 of the Investment Advisers Act of 1940 and Rule 206(4)-7 and JPMCB willfully violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933. JPMS and JPMCB admitted the facts set forth in the SEC’s order and acknowledged the conduct violated the federal securities laws. The subsidiaries agreed to jointly pay $127.5 million in disgorgement, $11.815 million in prejudgment interest, and a $127.5 million penalty. JPMS agreed to be censured, and both subsidiaries agreed to cease and desist from further violations.
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