Bank admits wrongdoing, an unusual move in such cases, for charges of failing to disclose conflicts of interest when promoting investments to wealthy clients

This article is more than 4 years old

This article is more than 4 years old

JP Morgan Chase agreed to pay $307m on Friday to settle charges that two of its wealth management units failed to disclose conflicts of interest when promoting investments to its wealthy clients.

Regulators said that JP Morgan Securities and its nationally chartered bank, JPMorgan Chase Bank, steered retail investors towards the firm’s own investment products without properly disclosing that preference.

The bank admitted wrongdoing, an unusual move in such cases, and has agreed to pay $267m to the Securities and Exchange Commission (SEC) and $40m to the US Commodity Futures Trading Commission (CFTC).

“Firms have an obligation to communicate all conflicts so a client can fairly judge the investment advice they are receiving,” said Andrew Ceresney, director of the SEC enforcement division.

According to the SEC between 2008 and 2013 the bank failed to properly disclose its preferences to both retail mutual fund customers and high net worth clients.



The CFTC found that the bank failed to fully disclose its preference for investing its client funds in hedge funds and mutual funds that were operated by the bank’s affiliates. It also failed to disclose its preference for investing its clients’ funds in third-party-managed hedge funds that shared management and/or performance fees with a bank affiliate.

Aitan Goelman, the CFTC’s director of enforcement, said: “Investors are entitled to know if a bank managing their money favors placing investments in its own proprietary funds or other vehicles that generate fees for the bank. As demonstrated by the enforcement actions made public today, we and our regulatory partners will aggressively pursue financial institutions that fail to provide adequate disclosures to clients.”



“We have always strived for full transparency in client communications, and in the last two years have further enhanced our disclosures in support of that goal,” said a JP Morgan spokesman. “The disclosure weaknesses cited in the settlements were not intentional and we regret them.”

