The Securities and Exchange Commission has charged J.P. Morgan Securities LLC (JPMS) with widespread and longstanding failures to maintain and preserve written communications.
SEC + CFTC = $200 Million
The broker-dealer subsidiary of JPMorgan Chase & Co acknowledged that its conduct violated the federal securities laws and agreed to pay a $125 million penalty.
The CFTC has made similar charges against JP Morgan entities and both parties settled for a $75 million penalty, bringing the total to $200 million.
SEC Chair Gary Gensler commented on the news by pointing the importance of recordkeeping and books-and-records obligations for market integrity since the 1930s.
“As technology changes, it’s even more important that registrants ensure that their communications are appropriately recorded and are not conducted outside of official channels in order to avoid market oversight.”
“Unfortunately, in the past we’ve seen violations in the financial markets that were committed using unofficial communications channels, such as the foreign exchange scandal of 2013. Books-and-records obligations help the SEC conduct its important examinations and enforcement work. They build trust in our system. Ultimately, everybody should play by the same rules, and today’s charges signal that we will continue to hold market participants accountable for violating our time-tested recordkeeping requirements.”
Using Personal Devices is a No No
Between 2018 and 2020, JP Morgan employees used text messages, WhatsApp, and personal email account to communicate about securities business matters.
Using personal devices kept the SEC from getting access to records of the communications as required by the federal securities laws.
During this period, the SEC requested documents from JPMS as part of numerous investigations but JPMS wasn’t able to meet them as the recordkeeping failures deprived the SEC staff of timely access to evidence and potential sources of information.
The issue was company-wide as even supervisors also used their personal devices to communicate about the firm’s securities business.
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, said: “Recordkeeping requirements are core to the Commission’s enforcement and examination programs and when firms fail to comply with them, as JPMorgan did, they directly undermine our ability to protect investors and preserve market integrity. We encourage registrants to not only scrutinize their document preservation processes and self-report failures such as those outlined in today’s action before we identify them, but to also consider the types of policies and procedures JPMorgan implemented to redress its failures in this case.”
“As today’s order reflects, JPMorgan’s failures hindered several Commission investigations and required the staff to take additional steps that should not have been necessary,” said Sanjay Wadhwa, Deputy Director of Enforcement. “This settlement reflects the seriousness of these violations. Firms must share the mission of investor protection rather than inhibit it with incomplete recordkeeping.”