The firm allegedly asked retail clients to sign agreements that restricted them from voluntarily contacting the SEC
J.P. Morgan Securities has agreed to pay the SEC $18 million to settle allegations that the investment management arm of Wall Street giant JPMorgan $JPM Chase violated the whistleblower protection rule under the Securities and Exchange Act, the agency said Tuesday.
The SEC said that between 2020 and 2023, J.P. Morgan Securities asked certain retail clients — advisory and brokerage customers who had been issued credits or settlements of more than $1,000 — to sign agreements that prohibited them from voluntarily contacting the regulator unless solicited. That effectively forced them to choose between getting cash or reporting fishy behavior to the SEC.
Those agreements stated that JPMorgan could sue a client if they violated its provisions, which included promising not to “sue or solicit others to institute any action or proceeding against” the firm, and keeping the agreements themselves confidential.
“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,” Gurbir S. Grewal, the director of the SEC’s Division of Enforcement, said in a statement.
Grewal said J.P. Morgan Securities forced its clients into an “untenable” position by making them choose between receiving settlements and reporting potential securities law violations to the SEC. “This either-or proposition not only undermined critical investor protections and placed investors at risk, but was also illegal,” he said.
A J.P. Morgan spokesperson told Quartz, “We take our regulatory obligations seriously and promptly took action to resolve this issue.”
In 2010, the Securities and Exchange Act was amended to include the whistleblower protection rule that J.P. Morgan allegedly violated.
The rule states: No person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement . . . with respect to such communications.
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