On December 18, 2015, the US Securities and Exchange Commission and the CFTC each issued orders filing and settling charges against JPMorgan Chase Bank and its subsidiaries. The SEC order found that JPMorgan Chase Bank N.A. and JPMorgan’s investment advisory business, JP Morgan Securities LLC, failed to properly disclose their preference to invest clients’ funds in the firm’s own proprietary investment products, depriving clients of information needed to make fully informed investment decisions. As such, 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. The subsidiaries agreed to jointly pay $127.5 million in disgorgement, $11.815 million in prejudgment interest, and a $127.5 million penalty. JPMS also agreed to be censured, and both subsidiaries agreed to cease and desist from further violations. In a parallel action, the CFTC ordered JPMCB to pay a $40 million civil monetary penalty, to pay disgorgement in the amount of $60 million, and to cease and desist from further violations as charged. According to the CFTC order, JPMCB failed to disclose certain conflicts of interest to clients of its US-based wealth management business, JPMorgan Private Bank, including its preference for investing client funds in certain commodity pools or exempt pools, namely hedge funds and mutual funds managed and operated by an affiliate and subsidiary of JP Morgan Chase & Co. JPMCB also failed to disclose its preference for investing its clients’ funds in certain third-party-managed hedge funds that shared management and/or performance fees with a JPMCB affiliate.
The SEC order is available at: http://www.sec.gov/litigation/admin/2015/33-9992.pdf and the CFTC order is available at: http://www.cftc.gov/idc/groups/public/@lrenforcementactions/documents/legalpleading/enfjpmorganorder121815.pdf.