The Securities and Exchange Commission (SEC) has filed civil charges against J.P. Morgan Securities LLC (JPMS) and J.P. Morgan Investment Management Inc. (JPMIM), both subsidiaries of JPMorgan Chase & Co., for a range of violations including misleading disclosures, breach of fiduciary duty, and improper trading practices. The charges stem from five separate enforcement actions that allege the firms failed to act in the best interest of their customers.
In total, the two firms have agreed to pay more than $151 million to resolve four of the actions, without admitting or denying the SEC’s findings. One action did not result in a penalty for JPMS, which was credited for its cooperation during the investigation and for implementing remedial measures.
“J.P. Morgan’s conduct across multiple business lines violated various laws designed to protect investors from self-dealing and conflicts of interest,” said Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement. “These settlements, which include significant voluntary payments to affected investors, hold the firms accountable for their regulatory failures.”
Details of the Charges
Conduit Private Funds Action (JPMS)
The SEC found that JPMS misled customers investing in its “Conduit” private funds. The firm allegedly failed to disclose that a JP Morgan affiliate had complete discretion over share sales, which exposed investors to significant market risk. As part of the settlement, JPMS will make a $90 million voluntary payment to over 1,500 affected investor accounts, along with a $10 million civil penalty.
Portfolio Management Program Action (JPMS)
From July 2017 to October 2024, JPMS reportedly did not adequately disclose financial incentives when recommending its own Portfolio Management Program over third-party options. The SEC imposed a $45 million penalty and a cease-and-desist order, noting that assets under management in this program grew significantly during that time.
Clone Mutual Funds Action (JPMS)
Between June 2020 and July 2022, JPMS recommended higher-cost “Clone Mutual Funds” to customers despite the availability of less expensive ETF options. Approximately 10,500 customers purchased these funds based on JPMS’s recommendations. Although the SEC found violations, it did not impose a civil penalty because JPMS self-reported the issue and repaid approximately $15.2 million to affected customers.
Joint Transactions Action (JPMIM)
In March 2020, JPMIM was found to have engaged in $4.3 billion of prohibited joint transactions, favoring an affiliated foreign money market fund over three U.S. money market mutual funds. This action resulted in a $5 million civil penalty.
Principal Trades Action (JPMIM)
From July 2019 to March 2021, JPMIM was involved in 65 prohibited principal trades valued at approximately $8.2 billion. These trades, conducted without the necessary disclosures, led to a $1 million civil penalty.
The investigations were conducted by various teams within the SEC’s Asset Management Unit, and oversight was provided by senior officials within the unit.
The SEC continues to emphasize the importance of compliance in protecting investors and maintaining fair trading practices in the financial markets.
