The Securities and Exchange Commission announced that JPMorgan has been fined $151 million to resolve multiple issues in which the company violated the law.
The SEC took action against two JPMorgan affiliates, J.P. Morgan Securities LLC (JPMS) and J.P. Morgan Investment Management Inc. (JPMIM). The two affiliates were fined over “five separate enforcement actions for 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 two affiliates did not admit or deny the SEC’s findings, but they agreed to the $151 million. The sum is divided between penalties and voluntary payments to investors for four of the cases, while there were no penalties imposed in the fifth.
“JP Morgan’s conduct across multiple business lines violated various laws designed to protect investors from the risks of self-dealing and conflicts of interest,” said Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement. “With today’s settlements, which include multiple self-reports and large voluntary payments to harmed investors, JP Morgan is being held accountable for its regulatory failures.”
The SEC found the two affiliates guilty of the following violations:
Conduit Private Funds Action (JPMS)
The SEC’s order finds that JPMS made misleading disclosures to brokerage customers who invested in its “Conduit” private funds products, which pooled customer money and invested it in private equity or hedge funds that would later distribute to the Conduit private funds shares of companies that went public. The order finds that, contrary to the disclosures, a JP Morgan affiliate exercised complete discretion over when to sell and the number of shares to be sold. As a result, investors were subject to market risk, and the value of certain shares declined significantly as JP Morgan took months to sell the shares. As part of the resolution of this enforcement action, JPMS agreed to make a voluntary payment of $90 million to more than 1,500 Conduit investor accounts and to pay a civil penalty of $10 million, which will also be distributed to Conduit investors.
Portfolio Management Program Action (JPMS)
The SEC’s order finds that, between July 2017 and October 2024, JPMS failed to fully and fairly disclose the financial incentive it and some of its financial advisors had when they recommended JPMS’s own Portfolio Management Program over third-party managed advisory programs offered by JPMS. During the relevant period, assets under management in the program’s strategies grew from approximately $10.5 billion to more than $30 billion.
Clone Mutual Funds Action (JPMS)
The SEC’s order finds that, between June 2020 and July 2022, JPMS recommended certain mutual fund products, called Clone Mutual Funds, to its retail brokerage customers when materially less expensive ETF products that offered the same investment portfolios were available. According to the order, when recommending the Clone Mutual Funds, JPMS and its registered representatives failed to consider these cost differences and failed to have a reasonable basis to believe that their recommendations were in the best interest of the customers. The order finds that approximately 10,500 customers made approximately 17,500 purchases of the Clone Mutual Funds during this period based on JPMS’s recommendations.
Joint Transactions Action (JPMIM)
The SEC’s order finds that, in March 2020, JPMIM caused $4.3 billion in prohibited joint transactions, which advantaged an affiliated foreign money market fund for which it served as the delegated portfolio manager over three U.S. money market mutual funds it advised.
Principal Trades Action (JPMIM)
The SEC’s order finds that, between July 2019 and March 2021, JPMIM engaged in or caused 65 prohibited principal trades with a combined notional value of approximately $8.2 billion. Principal trades are generally prohibited to avoid undisclosed conflicts of interest unless certain conditions are met or the SEC provides exemptive relief. The SEC’s order finds that, to conduct these trades, a JPMIM portfolio manager directed an unaffiliated broker-dealer to buy commercial paper or short-term fixed income securities from JPMS, which JPMIM then purchased on behalf of one of its clients.
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