Client Reported Securities Violations that Led to $267 Million SEC Enforcement Action
New York (December 18, 2015) – Labaton Sucharow LLP, which established the first national practice exclusively dedicated to representing Securities and Exchange Commission (SEC) whistleblowers, announced today that one of the firm’s clients reported the securities violations that led to the SEC’s groundbreaking enforcement action charging JPMorgan Securities LLC (JPMS) and JPMorgan Chase Bank N.A. (JPMCB) with, among other things, preferring to invest clients in the firm’s own proprietary investment products without properly disclosing this preference. This preference impacted two fundamental aspects of money management – asset allocation and the selection of fund managers – and deprived JPMorgan’s clients of information they needed to make fully informed investment decisions.
To resolve this serious matter, JPMorgan agreed to pay more than $267 million. Since the inception of the SEC Whistleblower Program, this case is believed to be the largest and highest-profile enforcement action initiated by an SEC whistleblower.
Jordan A. Thomas, Chair of Labaton Sucharow’s Whistleblower Representation Practice, represented the whistleblower, a JPMorgan executive, who brought the bank’s wrongdoing to the attention of the SEC and cooperated in the agency’s investigation. “My client never wanted to be a whistleblower, but believed the best way to protect JPMorgan clients and improve the sales culture of the organization—while avoiding retaliation and blacklisting—was to report these violations to the SEC.”
According to the SEC’s order instituting, JPMS failed to disclose numerous conflicts of interest to certain wealth management clients from 2008 to 2013:
- JPMS failed to disclose its preference for JPMorgan-managed mutual funds for retail investors in a unified managed account program known as the Chase Strategic Portfolio (CSP) that was sold through Chase Bank branches.
- JPMS failed to disclose that the availability and pricing of services provided to JPMS by another JPMorgan affiliate was tied to the amount of CSP assets invested in JPMorgan proprietary products.
- JPMS failed to disclose that certain JPMorgan-managed mutual funds purchased for CSP clients offered a less expensive share class and would generate less revenue for a JPMS affiliate than the share class JPMS chose for CSP clients.
- JPMS’s Forms ADV for CSP failed to adequately disclose these conflicts of interest.
- JPMS failed to implement written policies and procedures reasonably designed to prevent the violations that occurred.
“JPMorgan is a storied financial institution that lost its ethical way by recklessly pursuing market share in a highly lucrative business segment. Winning became more important than being straight with its clients and putting their interests first,” said Mr. Thomas, counsel for the whistleblower and a former Assistant Director in the Enforcement Division of the SEC. “Investors necessarily place their faith in their financial institutions to help them and their families save for the future. The troubling actions revealed in this case, which spanned several years, will test the faith of JPMorgan clients and require its many honorable financial advisers to work harder to re-establish this trust.”
Due to the unique protections and incentives offered by the SEC Whistleblower Program, Labaton Sucharow’s client reported the charged securities violations at JPMorgan to the SEC. This important investor protection program has broad international reach and offers eligible whistleblowers the ability to report anonymously and the opportunity to earn substantial monetary awards—regardless of nationality. To ensure that adequate funds are available to pay awards, Congress has established a replenishing Investor Protection Fund, which has a current balance in excess of $400 million.
“Financial whistleblowers serve as an important first line of defense against wrongdoing and, as awareness of the SEC Whistleblower Program grows, records will be broken and this groundbreaking enforcement action will seem small, ” added Mr. Thomas, who played a leadership role in the development of the SEC Whistleblower Program.
About Labaton Sucharow LLP
For more than 50 years, Labaton Sucharow has been one of the country’s premier law firms comprehensively representing businesses, institutional investors and consumers in complex securities and business litigation. It was the first law firm in the country to establish a practice exclusively focused on protecting and advocating for whistleblowers who report possible securities violations to the SEC. Building on the firm’s market-leading securities litigation platform, the Whistleblower Representation Practice leverages a world-class in-house team of investigators, financial analysts and forensic accountants with federal and state law enforcement experience to provide unparalleled representation for whistleblowers. Labaton Sucharow is consistently among the top plaintiff litigation firms based upon its rankings in Chambers & Partners, The Legal 500, The National Law Journal’s Plaintiffs’ Hot List and Benchmark Litigation. More information about the Firm and its Whistleblower Representation Practice is available at www.labaton.com.Corporate Compliance Insights is a wholly owned subsidiary of Conselium Executive Search, the global leader in compliance search.