The Commodity Futures Trading Commission and the Securities and Exchange Commission both filed and settled enforcement actions naming JPMorgan Chase Bank, N.A. over alleged non-disclosed conflicts of interest. The lawsuits were brought over JPMorgan’s alleged failure to notify clients of the bank’s wealth management business of its preference—because of economic incentives—to invest client funds in certain commodity pools, hedge funds and mutual funds managed and operated by an affiliate, or in similar third-party-managed vehicles that provided payments to the bank—termed “retrocessions.” The SEC action also named J.P. Morgan Securities LLC in connection with similar conduct for non-wealth management clients. JP Morgan resolved both actions by agreeing to pay an aggregate fine of US $167.5 million, disgorgement of US $127.5 million and almost US $12 million in prejudgment interest. The two agencies claimed that JP Morgan’s alleged wrongful conduct occurred from at least 2008 through January 2014, in connection with its proprietary funds, and from at least 2008 to August 2015, in connection with third-party entities. In connection with the SEC action, JP Morgan also agreed to take certain remedial actions, including providing notice to clients and prospective clients about the SEC’s proceedings. Separately, the SEC granted JP Morgan a waiver from an automatic prohibition to make certain private offerings going forward. This potential prohibition was triggered by the SEC’s enforcement action. As a condition for obtaining this waiver, JP Morgan additionally agreed to appoint an independent compliance consultant to conduct “a comprehensive review of the [Bank’s] policies and procedures relating to compliance [with its] … activities as an investment manager and placement agent to private funds.” Moreover, for five years, the consultant must prepare and certify an annual report to be provided to the SEC for “public dissemination” regarding the firm’s compliance with its obligations regarding private offerings.
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Bank Sanctioned US $307 Million by CFTC and SEC for Alleged Conflicts of Interest in Investing Clients’ Funds
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