JP Morgan Pays Massive $367 to Settle Client Steering Probes by SEC, CFTC

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100 Dollar Bills representing settlement and False Claims Act

Settlement Agreements for JP Morgan

An investigation into the adequacy of disclosures to clients of its wealth management business has resulted in a settlement of $367 million with U.S. securities regulators to resolve their investigations into the practices at JPMorgan. JPM clients were steered toward certain mutual funds and hedge funds without disclosing the bank’s preference for investment management by its affiliate or third-party funds that paid fees to JP Morgan. As a result of the settlement agreements, JP Morgan will pay $267 million to the Securities & Exchange Commission (SEC) and $100 million to the Commodity Futures Trading Commission (CFTC).


Another whistleblower attorney has released a press release claiming that his firm represented the insider executive that tipped the SEC off to the misconduct by JP Morgan. If the SEC agrees to an award, it is likely to set a new record for SEC whistleblower awards.  The top reward previously went to an international whistleblower in the amount of $30 million.

The probe into the conflicts of interest at the bank heated up this year as both the Department of Labor (DOL) and SEC have been considering possible changes to the fiduciary duties owed by brokers, investment advisers and others regulated by the two agencies.

The press releases of the SEC and the CFTC both addressed the importance of adequate disclosures by investment professionals to customers so that those investing their money can evaluate the investment advice properly. Between the two agencies, the subsidiaries agreed to pay penalties of $167.5 million, nearly $12 million in prejudgment interest and disgorge nearly $190 million in profits.

This summer, the media reported that the bank would pay in excess of $150 million to resolve the investigation by the SEC. Subsequent reporting revealed the existence of an investigation by the CFTC into the conflicts of interest as well as the SEC taking a harder line in negotiations.

There has been no mention of a whistleblower in the case although this seems like the type of discovery that could very well be reported to the government by either a bank insider or an investor in one of the funds. Both the SEC and CFTC reward securities whistleblowers with between 10 and 30 percent of the government’s recovery pursuant to the terms and conditions of the Dodd-Frank programs.

If there is to be a reward payment, we can expect it will take at least a year for the application to move through the system. Any award could very well set a record for both the SEC and the CFTC as the individual would be looking at a minimum of $36 million between the two penalties.

It seems unlikely that JPM is the only investment bank that is engaged in this behavior. We know that the government has also been investigating hedge funds for inadequate disclosures. We look forward to hearing from investors who have discovered that their investment manager is engaged in wrongdoing.