JPMS had been regularly requesting retail clients to sign confidential release agreements if they had received a credit or settlement of more than $1,000 from the firm between March 2020 and July 2023. These agreements obligated the clients to maintain the confidentiality of the settlement, all relevant facts related to it, and any information concerning the account in question
The Securities and Exchange Commission made an announcement today regarding the charges settled against J.P. Morgan Securities LLC (JPMS). It was found that JPMS hindered numerous advisory clients and brokerage customers from reporting potential violations of securities laws to the SEC. To resolve these charges, JPMS has agreed to pay a civil penalty of $18 million.
As per the SEC's order, JPMS had been regularly requesting retail clients to sign confidential release agreements if they had received a credit or settlement of more than $1,000 from the firm between March 2020 and July 2023. These agreements obligated the clients to maintain the confidentiality of the settlement, all relevant facts related to it, and any information concerning the account in question. Furthermore, although the agreements allowed clients to respond to SEC inquiries, they did not permit clients to proactively reach out to the SEC.
“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,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “But that’s exactly what we allege J.P. Morgan did here. For several years, it forced certain clients into the untenable position of choosing between receiving settlements or credits from the firm 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.”
“Investors, whether retail or otherwise, must be free to report complaints to the SEC without any interference,” said Corey Schuster, Co-Chief of the Enforcement Division’s Asset Management Unit. “Those drafting or using confidentiality agreements need to ensure that they do not include provisions that impede potential whistleblowers.”
The SEC's recent ruling states that JPMS has violated Rule 21F-17(a) of the Securities Exchange Act of 1934, which is a crucial whistleblower protection rule. This rule strictly prohibits any action that obstructs an individual from directly communicating with the SEC staff regarding potential violations of securities laws. Although JPMS neither admits nor denies the findings, they have agreed to be censured, to cease and desist from violating the whistleblower protection rule, and to pay a substantial civil penalty of $18 million.
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