will pay $200 million in fines after admitting that employees made widespread use of personal phones, emails and text messages to conduct official business. This violated the record-keeping rules of both the Securites and Exchange Commission and the Commodity Futures Trading Commission.
The SEC censured J.P. Morgan Securities, the bank’s stock-market unit, and will have a compliance consultant ensure that the firm obeys a cease-and-desist order. The CFTC filed and settled separate record-keeping charges.
From 2018 to 2020, J.P. Morgan employees often used their personal accounts to communicate about official business, said the SEC in announcing its administrative charges Friday morning. The firm retained no records of these interchanges and failed to look for them when responding to SEC investigatory subpoenas and oversight requests. So rampant was the practice that even the compliance personnel at J.P. Morgan used personal devices, according to the fact-findings admitted by the brokerage firm.
“Since the 1930s, record-keeping and books-and-records obligations have been an essential part of market integrity,” said SEC Chair Gary Gensler, in the agency’s announcement. “Unfortunately, in the past we’ve seen violations in the financial markets that were committed using unofficial communications channels.”
In the CFTC’s Friday announcement, the commodities and futures regulator said that banking and brokerage units of JPMorgan Chase in the U.S. and Britain admitted to violating recordkeeping laws and regulations.
JPMorgan Chase (ticker: JPM) had no comment and said it will publish a securities filing acknowledging the matter. In late morning, the stock was down 2%, to $157, while the
had fallen 0.5%
The brokerage firm’s unofficial communications involved the exchange of tens of thousands of messages among more than 100 employees using personal text, email and WhatsApp accounts, said SEC officials with knowledge of the case. The communications involved the breadth of the broker’s business, from trading to investment banking. Securities law requires firms to retain such records for three to six years, or even longer.
Although Covid-19 lockdowns abruptly shifted America’s workers to home offices in early 2020, the SEC-sanctioned communications by J.P. Morgan employees stretched from January 2018 to November 2020. The record-keeping violations admitted by J.P. Morgan Chase Bank and J.P. Morgan Securities in the separate CFTC proceeding extended back to July 2015.
In the CFTC administrative order announced Friday, that agency said the use of personal text and WhatsApp accounts by JPMorgan traders came to light during an agency investigation into the firm’s trading. When investigators asked the firm why those communications hadn’t been turned over in response to CFTC subpoenas, JPMorgan acknowledged widespread use of unapproved communications channels, said the CFTC order.
In addition to acknowledging SEC record-keeping violations, J.P. Morgan will hire a compliance consultant to review its record-keeping procedures and will pay a $125 million penalty. That’s the largest record-keeping fine in SEC history, said agency officials, and far exceeds a $15 million penalty paid by
(MS) in 2006. To settle the CFTC action, JPMorgan’s brokers and bankers will also undertake remedial measures, while the firm pays a $75 million fine.
The penalty and hiring of the consultant will resolve the SEC administrative charges for the conduct discovered so far, though the agency says it will continue the investigation. The SEC noted that the bank has improved its record-keeping policies and employee training.
J.P. Morgan’s lapse has prompted the SEC to examine the electronic record-keeping practices of other financial firms. In Friday’s announcement, the agency’s director of enforcement Gurbir Grewal encouraged brokers to voluntarily come forward with any reporting failures resembling J.P. Morgan’s. The SEC has established an email contact point at: [email protected]
“Record-keeping requirements are core to the Commission’s enforcement and examination programs,” said Grewal, “and when firms fail to comply with them, as JPMorgan did, they directly undermine our ability to protect investors and preserve market integrity.”
Write to Bill Alpert at [email protected]