J.P. Morgan Securities will pay $18 million to settle SEC charges that it pressured hundreds of brokerage and advisory clients to not approach the commission with concerns about securities violations.
From March 2020 through July 2023, J.P. Morgan put clients in “the untenable position” of deciding whether or not they should take settlements or credits from the firm in exchange for vowing not to be whistleblowers to regulators, according to SEC Enforcement Division Director Gurbir S. Grewal.
“Whether it’s in your employment contracts, settlement agreements or elsewhere, you simply cannot include provisions that prevent individuals from contacting the SEC with evidence of wrongdoing. But that’s exactly what we allege J.P. Morgan did here,” he said. “This either-or proposition not only undermined critical investor protections and placed investors at risk, but was also illegal.”
According to the SEC order, J.P. Morgan Securities would ask clients to sign a release if they received a credit or settlement of more than $1,000, regardless of whether the firm admitted any wrongdoing along with the payment (sometimes, they’d make additional payments to clients, and in one case this additional payment was higher than the original credit). In the three-year time period, at least 362 clients signed such a release.
But any client who signed the release agreed not to sue “or solicit others to institute any action or proceeding” against the firm, according to the SEC. If the client breached that agreement, J.P. Morgan threatened that “it may undertake whatever legal action they deem appropriate” including monetary damages (albeit, the damages couldn’t exceed the settlement amount).
J.P. Morgan also demanded clients that signed the agreement had to keep it confidential, but the firm stressed that clients or their attorneys were “neither prohibited nor restricted from responding to any inquiry about this settlement or its underlying facts” by regulators, according to the SEC.
In the order, the commission accused J.P. Morgan of violating the Dodd-Frank Act provision stating that no one can stop an individual “from communicating directly with the commission staff about a possible securities law violations,” including by enforcing or threatening to enforce any kind of confidentiality agreement.
The release didn’t detail what kinds of situations led to the credits to be offered in the first place, nor did a spokesperson for J.P. Morgan Securities elaborate when commenting on the settlement.
“We take our regulatory obligations seriously and promptly took action to resolve this issue," the spokesperson told WealthManagement.com.
The settlement acknowledged that once SEC staff alerted J.P. Morgan to the issue, the firm changed the language in the agreements to clarify that clients could approach regulators, and also reached out to clients who’d received the release saying the same. In addition to the fine, J.P. Morgan agreed to a censure, as well as a cease-and-desist order.