J.P. Morgan Faces $18 Million Thunderstorm for Whistleblower Rule Breach!

Key Points:

• SEC charges J.P. Morgan for impeding clients from reporting securities violations.
• JPMS to pay $18 million civil penalty, violating whistleblower protection rule.

Securities and Exchange Commission (SEC) has revealed that it has reached a settlement with J.P. Morgan Securities LLC (JPMS) over charges related to obstructing clients from reporting potential securities law violations.

The financial giant has agreed to pay a substantial $18 million civil penalty to resolve the allegations.

According to the SEC’s order, spanning from March 2020 to July 2023, JPMS consistently required retail clients to sign confidential release agreements if they received settlements or credits exceeding $1,000 from the firm. These agreements compelled clients to keep details of the settlement, underlying facts, and account-related information confidential. Notably, although clients were allowed to respond to SEC inquiries, they were prohibited from voluntarily contacting the SEC.

JPMS Forced Clients into Silence for Settlements

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, emphasized the illegality of such practices, stating, “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.” The SEC alleges that J.P. Morgan’s actions forced clients into a dilemma, choosing between accepting settlements or credits and reporting potential securities law violations to the SEC, thereby jeopardizing investor protections and violating the law.

Co-Chief of the Enforcement Division’s Asset Management Unit, Corey Schuster, stressed the importance of ensuring investors, regardless of their status, can report complaints to the SEC without hindrance. The SEC’s order holds that JPMS violated Rule 21F-17(a), a whistleblower protection rule, and as part of the settlement, JPMS neither admits nor denies the findings but has agreed to a censure, cessation of violating the whistleblower protection rule, and payment of the $18 million civil penalty.

The investigation, conducted by Marie DeBonis and Jessica Neiterman, with supervisory support from various SEC units, highlights the imperative need for confidentiality agreements to avoid impeding potential whistleblowers and reinforces the SEC’s commitment to upholding investor rights and market integrity.