SEC Charges J.P. Morgan Securities for Disclosure Failures Related to Retirement and Charitable Customers
Jan. 9, 2020
File No. 3-19639
January 9, 2020 - The Securities and Exchange Commission today announced that J.P. Morgan Securities LLC (JPMS), a registered broker-dealer and investment adviser located in New York City, agreed to settle charges that it failed to provide certain retail retirement account and charitable organization brokerage customers with sales charge waivers and lower fee share classes when selling certain mutual funds to them.
According to the SEC's order, from at least January 2010 through December 2015, JPMS disadvantaged these customers by failing to ascertain their eligibility for a less expensive mutual fund share class, and by recommending and selling them more expensive mutual fund share classes when less expensive share classes were available. The order finds that JPMS did so without disclosing that it would receive greater compensation from the customers' purchases of the more expensive share classes. The order further finds that JPMS did not disclose that the more expensive share classes would negatively impact the overall return on the investments due to the different fee structures for the different mutual fund share classes.
As a result of JPMS's failures, approximately 16,734 customer accounts paid a total of $16,283,277 in sales charges, ongoing fees, and other expenses. JPMS has voluntarily issued payments to customers, including interest, for 98% of the overcharges and is disgorging undistributed remediation for 399 former customers it was unable to locate. JPMS also has converted all affected customers to the mutual fund share class with the lowest expenses for which they are eligible, at no cost to the customers.
The SEC's order finds that JPMS violated the antifraud provisions of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933. Without admitting or denying the SEC's findings, JPMS consented to cease-and-desist from future violations of these provisions, a censure, disgorgement of $251,083 with prejudgment interest of $71,355, and a civil penalty of $1,500,000.
The SEC's investigation was conducted by Luke Fitzgerald and John Farinacci of the Enforcement Division's Asset Management Unit, and supervised by Assistant Director Corey Schuster. The Office of Compliance Inspections and Examinations' Risk Analysis Examination Team provided data analytics support.