JPMorgan has admitted to wrongdoing in failing to disclose conflict of interest to its clients, and has agreed to pay $307 million to settle the charges.
The two wealth management subsidiaries of JPMorgan Chase — JPMorgan Securities LLC (JPMS) and nationally chartered bank JPMorgan Chase Bank NA (JPMCB) — were found by the US Securities and Exchange Commission (SEC) to have guided retail investors to invest in the two subsidiaries without disclosing it, depriving clients of information to make informed investment decisions.
The investment bank will pay $267 million to the SEC and $40 million to the US Commodity Futures Trading Commission (CFTC), the US SEC said in a statement.
JPMS did not disclose its preference for JPMorgan-managed funds for retail investors in its unified account programme called the Chase Strategic Plan (CSP), and failed to inform clients that such funds purchased for CSP clients offered a "less expensive share class and would generate less revenue for a JPMS affiliate than the share class JPMS chose for CSP clients".
"Firms have an obligation to communicate all conflicts so a client can fairly judge the investment advice they are receiving," said Andrew J Ceresney, Director of the SEC Enforcement Division.
"These JPMorgan subsidiaries failed to disclose that they preferred to invest client money in firm-managed mutual funds and hedge funds, and clients were denied all the facts to determine why investment decisions were being made by their investment advisers," he added.
Julie M Riewe, Co-Chief of the SEC Enforcement Division's Asset Management Unit, said: "In addition to proprietary product conflicts, JPMS breached its fiduciary duty to certain clients when it did not inform them that they were being invested in a more expensive share class of proprietary mutual funds, and JPMCB did not disclose that it preferred third-party-managed hedge funds that made payments to a JPMorgan affiliate."
JPMS and JPMCB admitted the facts set forth in the SEC's order and acknowledged the conduct violated the federal securities laws. The subsidiaries agreed to jointly pay $127.5 million in disgorgement, $11.815 million in prejudgment interest, and a $127.5 million penalty. JPMS agreed to be censured, and both subsidiaries agreed to cease and desist from further violations, the SEC statement said.
The SEC levied $4.2 billion in disgorgement and penalties during the fiscal year ended September this year in 807 enforcement cases covering a range of misconduct, as against $4.16 billion the previous fiscal.
Some of the entities charged for violations include Morgan Stanley & Co, Goldman, Sachs & Co and UBS AG, the SEC said in October 2015.
UBS paid $19.5 million to the SEC to settle charges that it made "false or misleading statements and omissions in offering materials provided to US investors in structured notes linked to a proprietary foreign exchange trading strategy".
