JPMorgan to pay $307 mln to settle SEC, CFTC disclosure charges

23 Dec 2015 | Author: | No comments yet »

J.P. Morgan to pay $307 million over client ‘steering’.

JPMorgan Chase has agreed to pay $307 million to settle accusations that it improperly steered clients into the company’s proprietary mutual funds and hedge funds.

From 2008 to 2015, brokers and financial advisers in several divisions of JPMorgan gave preference to investment products created by the bank’s asset management division when deciding where to put client money, regulators said on Friday. Regulators said that JP Morgan Securities and its nationally chartered bank, JPMorgan Chase Bank, steered retail investors towards the firm’s own investment products without properly disclosing that preference. In some cases, regulators said the clients were put into products with higher fees, which earned JPMorgan more money, even when the same JPMorgan product was available for a lower fee. “The undisclosed conflicts were pervasive,” the head of enforcement at the Securities and Exchange Commission, Andrew J. According to the SEC between 2008 and 2013 the bank failed to properly disclose its preferences to both retail mutual fund customers and high net worth clients.

It also failed to disclose its preference for investing its clients’ funds in third-party-managed hedge funds that shared management and/or performance fees with a bank affiliate. Aitan Goelman, the CFTC’s director of enforcement, said: “Investors are entitled to know if a bank managing their money favors placing investments in its own proprietary funds or other vehicles that generate fees for the bank. The CFTC and SEC also noted that the bank selected third-party hedge-fund managers of its client funds based on whether they were willing to pay placement fees, or “retrocessions,” for placement, shareholder servicing and other ongoing services to the hedge funds. As demonstrated by the enforcement actions made public today, we and our regulatory partners will aggressively pursue financial institutions that fail to provide adequate disclosures to clients.” “We have always strived for full transparency in client communications, and in the last two years have further enhanced our disclosures in support of that goal,” said a JP Morgan spokesman. “The disclosure weaknesses cited in the settlements were not intentional and we regret them.”

Commodity Futures Trading Commission said Friday. “Firms have an obligation to communicate all conflicts so a client can fairly judge the investment advice they are receiving,” said Andrew J. The bank did not disclose this preference for retrocession-paying hedge funds until August 2015, when it added additional language to certain client documentation. Morgan agreed to hire an independent compliance consultant to review policies and procedures concerning disclosures of conflicts of interest and to implement the recommendations of the consultant. The client is said to have cooperated in the agency’s investigation. “My client never wanted to be a whistleblower,” said Thomas, “but believed the best way to protect J.P. Morgan clients and improve the sales culture of the organization — while avoiding retaliation and blacklisting — was to report these violations to the SEC.” Julie M.

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