The holiday season may be a time of good cheer. Wall Street banks may not agree, however, at least for this year. As the season began to unfold JPMorgan settled a Commission action centered on conflicts by admitting the facts in the Order and paying disgorgement and penalties. In the Matter of Morgan Stanley Investment Management Inc., Adm. Proc. File No. 3-17016 (December 22, 2015). A few days later Morgan Stanley was named in another settled SEC action. In the Matter of JPMorgan Chase Bank, N.A., Adm. Proc. File No. 3-17008 (December 18, 2015). That proceeding was based on parking violations (both of these actions will be discussed in the Friday post). Now JP Morgan has been named in a second suit, this one based on false advertising claims made to some of its wealthiest clients. In the Matter of J.P. Morgan, Adm. Proc. File No. 3-17036 (January 6, 2016).
JPM Securities is a wholly-owned subsidiary of JPMorgan Chase & Co. The firm is a registered broker dealer and investment adviser. It provides brokerage services to a business unit called J.P. Morgan Private Bank which is a marketing name for a segment that provides banking and investment services in the U.S. to high net worth and ultra-high net worth customers.
Over a period of four years beginning in 2009 JPM Securities used marketing materials where were false despite repeated warnings by personnel. Specifically, the materials stated that JPM Securities compensated registered representatives in Private Bank based solely on the performance of investments in customer accounts. In fact they were paid a salary and a bonus which depended on a number of factors that did not include client account performance. The misrepresentation was made on:
Prospecting card: This was a wallet size card that contained key points about JPM Private Bank. The card was reviewed by internal compliance and received approval from the marketing department.
Private Bank webpage: In June 2010 Private Bank made certain revisions to its website. Those included adding the misrepresentation regarding broker compensation. The page was reviewed by the marketing department and approved by compliance.
Tampa webpage: In February 2011 Private Bank’s branch office webpage was revised and a separate one created for Tampa. It included the misrepresentation regarding broker compensation.
Pitch books: In March 2009 the marketing manager worked on a pitch book for Private Bank. The book included the compensation misrepresentation. It was disseminated for internal review prior to release.
Marketing letter: In November an adviser at Private Bank obtained approval for a marketing letter that was sent to his contacts. It contained the broker compensation misrepresentation.
Over a three year period beginning in 2011 four JPM Securities employees noted that the statement about broker compensation was inaccurate. No changes were made. The Order alleges willful violations of Securities Act Section 17(a)(2).
To resolve the proceeding Respondent undertook remedial action considered by the Commission. The firm also consented to the entry of a cease and desist order based on the Section cited in the Order and to a censure. In addition, JPM Securities will pay a penalty of $4 million.