SEC Fines JPMorgan Entities for Product Recommendations, Other Failures

In five administrative actions, the Securities and Exchange Commission (SEC) charged JPMorgan Securities LLC and JPMorgan Investment Management for alleged failures including, “misleading disclosures to investors, breach of fiduciary duty, prohibited joint transactions and principal trades, and failures to make recommendations in the best interest of customers.”

The Commission found that between June 2020 and July 2022, JPMorgan Securities LLC recommended cloned mutual fund products to certain retail brokerage customers when according to the Commission, “materially less expensive ETF products that offered the same investment portfolios were available.” According to the order, JPMorgan Securities failed to consider the cost difference and failed to have a reasonable basis to believe that their recommendations were in the best interest of the customers violating Regulation Best Interest. Additionally, the Commission found that JPMorgan Investment Management violated Section 17(d) of the Investment Company Act and Rule 17d-1 when it facilitated $4.3 billion in prohibited joint transactions, which advantaged an affiliated fund for which it served as the delegated portfolio manager over three U.S. money market mutual funds it advised. The Commission also found both firms violated Section 17(a)(1) of the Investment Company Act, Sections 206(3) and 206(4) of the Advisers Act and Rule 206(4)-7 thereunder, and caused certain clients to violate Rule 38a-1 of the Investment Company Act because of 65 prohibited principal trades with a combined notional value of approximately $8.2 billion. According to the Commission’s press release, “principal trades are generally prohibited to avoid undisclosed conflicts of interest unless certain conditions are met or the SEC provides exemptive relief.”

The two affiliates of JPMorgan Chase & Co. agreed to pay more than $151 million in combined civil penalties as well as voluntary payments to investors to resolve four of the ­actions. According to the press release, the Commission did not impose a penalty in one of the actions because the entity “cooperated in the investigation and undertook remedial measures.”

Click here to read the Commission’s statement on the charges against JPMorgan Chase.
Click here to read a client alert from Stradley Ronon on the enforcement proceedings.