Representing financial professionals, financial institutions and investors in investment loss, employment and disclosure matters, and in regulatory investigations nationwide.

J.P. Morgan penalized $18 million by SEC for violating whistleblower protection rule

On Behalf of | Jan 24, 2024 | Securities and Compliance

The Securities and Exchange Commission has announced a settlement with J.P. Morgan (JPMS) in which the firm will pay $18 million for violating a rule implemented to protect whistleblowers.

The SEC’s order, spanning the period from March 2020 through July 2023, alleges that JMPS impeded hundreds of advisory clients and brokerage customers from reporting potential securities law violations to the SEC.

The commission determined that JPMS regularly asked clients to sign confidential release agreements if the firm issued them a credit or settlement of over $1,000.  Under terms of the agreements, clients were required to keep the settlements confidential, as well as all underlying facts relating to the settlement, and all information relating to the account at issue. Though the agreements allowed clients to respond to SEC inquiries, the clients were not permitted to voluntarily contact 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.”

JPMS was found by the SEC to have violated Rule 21F-17(a) under the Securities Exchange Act of 1934, a whistleblower protection rule that prohibits taking any action to impede an individual from communicating directly with the SEC staff about possible securities law violations.  The SEC said any firm using confidentiality agreements must ensure that they do not include provisions impeding potential whistleblowers, noting that investors must be free to report complaints to the SEC without interference.

JPMS did not admit or deny the findings, but agreed to pay the $18 million civil penalty and agreed to be censured.  The firm also consented to cease and desist from violating the whistleblower protection rule.

The attorneys at Lewitas Hyman include former senior attorneys at the SEC whose legal experience and industry knowledge make them uniquely qualified to provide counsel on securities regulatory, compliance and enforcement matters. Our attorneys fully understand the regulatory scrutiny financial professionals and their firms face from the various regulators that oversee the financial services industry. If your firm is facing an investigation from a regulatory agency, please contact Lewitas Hyman at (888) 655-6002 or through our online contact form.