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Rating:A Whistleblower Cried Foul; Now JPM Is Paying $307MM Not Rated 0.0 Email Routing List Email & Route  Print Print
Monday, December 21, 2015

A Whistleblower Cried Foul; Now JPM Is Paying $307MM

Reported by Neil Anderson, Managing Editor

J.P. Morgan has agreed to pay nine figures to settle disclosure charges around its proprietary funds, as expected. Yet in both settlements the giant bank also "admitted and acknowledged" the charges instead of neither admitting nor denying. And it looks like a whistleblower was involved in the investigation, too.

Jordan A. Thomas
Labaton Sucharow
Partner
On Thursday, news broke that J.P. Morgan [profile] was poised to settle civil charges from both the SEC and the CFTC (which regulates commodities and options trading) for upwards of $200 million. On Friday the two regulators made it official: J.P. Morgan agreed to a $267-million settlement with the SEC and a $100-million settlement with the CFTC. The settlements combine to about $307 million (as there's $60-million in disgorgement that overlaps and is part of both settlements).

Kristen Chambers, executive director of media relations for J.P. Morgan Asset Management, offered the following emailed statement on the two settlements:

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. The disclosure weaknesses cited in the settlements were not intentional and we regret them. We remain confident in our investment process and are proud of the way we manage money.


The scandal, which has been brewing for at least three and a half years, hinges on how J.P. Morgan discloses conflicts of interest regarding use of its own proprietary mutual funds and hedge funds by its J.P. Morgan Securities unit and in its Chase Strategic Portfolio offering through its bank branches.

Unlike in the past, the SEC now often pushes for companies to admit to findings as part of settlements, and these two J.P. Morgan settlements fit that bill.

"JPMS [J.P. Morgan Securities] and JPMCB [JPMorgan Chase Bank] admitted the facts set forth in the SEC's order and acknowledge the conduct violated the federal securities laws," the SEC's release reads. "JPMS agreed to be censured, and both subsidiaries agreed to cease and desist from further violations."

Jordan Thomas, chair of New York City-based law firm Labaton Sucharow's whistleblower representation practice, reveals that an unnamed whistleblower tipped the SEC off about the J.P. Morgan practices in question. Thomas, who serves as counsel for the whistleblower, previously served as assistant director in the SEC's enforcement division and helped develop the SEC's whistleblower program.

The law firm claims that this might be "the largest and highest profile enforcement action initiated by an SEC whistleblower" since the SEC's whistleblower program was first created in July 2010. SEC spokeswoman Judith Burns declines to comment on the whistleblower or on how much that whistleblower will be paid from the program's Investor Protection Fund, which currently holds more than $400 million.

Labaton Sucharow's Thomas describes J.P. Morgan and the case as "a storied financial institution that lost its ethical way by pursuing market share in a highly lucrative business segment."

The SEC and CFTC fund settlements came just days before J.P. Morgan separately agreed to a $150-million class-action lawsuit filed after the 2012 "London Whale" trading scandal. And the settlements also come three months the SEC landed its first "distribution in guise" sweep mutual fund settlement, in that case with First Eagle. 

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