JP Morgan has agreed to pay $151 million in fines in five separate enforcement actions against its affiliate companies.
The SEC charged JP Morgan Securities LLC (JPMS) and JP Morgan Investment Management Inc. (JPMIM)—both affiliates of JPMorgan Chase & Co.
The charges involve failures in investor disclosures, breaches of fiduciary duty, and prohibited transactions.
In a settlement, JP Morgan agreed to pay over $151 million in combined penalties and repayments to impacted investors in four cases, while one case had no financial penalty due to cooperation.
The Violations and Penalties
- Misleading Disclosures and Investor Risks: JPMS faced allegations of making misleading statements to customers investing in “Conduit” private funds. These funds pooled client money into private equity or hedge funds, where JP Morgan had full control over selling decisions. Delays in share sales resulted in market exposure for investors, reducing share value. JPMS agreed to pay $90 million to around 1,500 investor accounts, alongside a $10 million penalty.
- Conflicts in Portfolio Recommendations: From 2017 to 2024, JPMS allegedly failed to disclose financial incentives that encouraged advisors to recommend its proprietary Portfolio Management Program over third-party options. This program’s assets grew from $10.5 billion to over $30 billion during this period. For this violation, JPMS agreed to a cease-and-desist order, a censure, and a $45 million penalty.
- Unfavorable Mutual Fund Options for Customers: Between 2020 and 2022, JPMS recommended “Clone Mutual Funds” over more cost-effective ETFs with identical portfolios, failing to consider cost discrepancies. As a result, 10,500 customers made approximately 17,500 purchases of these pricier options. JPMS repaid affected customers $15.2 million and avoided additional penalties due to proactive internal investigation and self-reporting.
- Unauthorized Joint Transactions to Benefit Affiliates: JPMIM was found to have enabled $4.3 billion in prohibited joint transactions, favoring an affiliated foreign fund over three U.S. money market mutual funds. A $5 million penalty was imposed on JPMIM for violating the Investment Company Act’s joint transaction rules.
- Principal Trades and Conflict of Interest: From 2019 to 2021, JPMIM was involved in prohibited principal trades totaling $8.2 billion. Such trades create conflicts of interest unless specific conditions are met or exemptive relief is granted. JPMIM reported these violations to the SEC, resulting in a $1 million penalty.
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SEC’s Stance and JP Morgan’s Accountability
According to Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement, said:
“J.P. Morgan’s conduct across multiple business lines violated various laws designed to protect investors from the risks of self-dealing and conflicts of interest.
“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.”
What This Means for Investors
Investors are reminded of the importance of understanding disclosures and the incentives behind investment recommendations. These cases underscore regulatory efforts to protect investors from conflicts of interest and ensure fair practices in financial advising.
