The U.S. Securities and Exchange Commission (SEC) has
settled five administrative actions against J.P. Morgan Securities LLC (JPMS) and J.P. Morgan Investment Management Inc. (JPMIM), affiliates of JPMorgan Chase & Co. (JPMorganChase), for alleged failures including misleading disclosures to investors, product fee-based best interest violations, prohibited joint transactions and improperly managed principal trades. Without admitting or denying the findings in the SEC’s October 31 orders, JPMS and JPMIM agreed to pay more than $151 million in combined civil penalties and voluntary payments to investors to resolve the actions. Despite the magnitude of the combined monetary remedies, all five actions were based on non-scienter violations, and those remedies ranged from as low as $1 million to as high as $100 million.
Portfolio Management Program Action1
JPMS, a dually registered investment adviser and broker-dealer, offers discretionary wrap fee programs to its clients. These programs are advisory programs in which clients pay JPMS an asset-based fee for asset management, and JPMS agrees not to charge clients any transaction-based fees for the purchase or sale of securities in client accounts. JPMS offered both discretionary wrap fee programs through its own strategies (PM Program) and through strategies offered by other third-party investment advisers (TPM Program).
While overall fees in the PM Program were typically lower than the TPM Program because clients were not charged a third-party fee, the financial advisers managing the PM Program typically charged a higher wrap fee to those accounts. The wrap fees collected for the PM Program were shared between JPMS and the financial advisers. However, the wrap fees collected for the TPM Program were retained solely by JPMS.
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The authors would like to thank Stradley Ronon law clerk Jocelyn Near
for her assistance with this client alert.