J.P. Morgan Securities to Pay $200 Million for “Widespread” Recordkeeping Failures
The Securities and Exchange Commission has charged broker-dealer, J.P. Morgan Securities LLC, for "widespread and longstanding failures" by the firm and its employees to maintain and preserve written communications.
The Securities and Exchange Commission has charged broker-dealer, J.P. Morgan Securities LLC, for “widespread and longstanding failures” by the firm and its employees to maintain and preserve written communications. The firm agreed to pay a $125 million penalty and implement improvements to its compliance policies and procedures to settle the matter.
The Commodity Futures Trading Commission also fined the firm $75 million for the same conduct.
According to the SEC, J.P. Morgan Securities admitted that from at least January 2018 through November 2020, its employees often communicated about securities business matters on their personal devices, using text messages, WhatsApp, and personal email accounts. None of these records were preserved by the firm as required by the federal securities laws.
The SEC claims that J.P. Morgan Securities also admitted that the failures were firm-wide and that practices were not hidden within the firm. Supervisors, including managing directors and other senior supervisors, also used their personal devices to communicate about the firm’s securities business.
The broker-dealer received subpoenas for documents and voluntary requests from the SEC in numerous investigations during the time period that it failed to maintain required records. The SEC claims that when responding to these subpoenas and requests, the firm frequently did not search for relevant records contained on the personal devices of its employees.
J.P. Morgan acknowledged that its recordkeeping failures deprived the SEC of timely access to evidence and potential sources of information for extended periods of time, and in some instances, permanently. As such, the SEC said their actions “meaningfully impacted” its ability to investigate potential violations of the federal securities laws.
“Recordkeeping requirements are core to the Commission’s enforcement and examination programs and when firms fail to comply with them, as JPMorgan did, they directly undermine our ability to protect investors and preserve market integrity,” said Gurbir Grewal, director of the SEC’s Division of Enforcement. “We encourage registrants to not only scrutinize their document preservation processes and self-report failures…before we identify them, but to also consider the types of policies and procedures JPMorgan implemented to redress its failures in this case.”
In addition to the censure and fine, J.P. Morgan Securities also agreed to retain a compliance consultant to review its policies and procedures relating to the retention of electronic communications found on personal devices and the framework for addressing non-compliance by employees.
As a result of the findings in this investigation, the SEC has commenced additional investigations of record preservation practices at financial firms. Firms that believe that their record preservation practices do not comply with the securities laws are encouraged to contact the SEC.
