A business unit of JP Morgan Chase will pay a $18 million civil penalty to settle charges brought by the US Securities and Exchange Commission (SEC) for silencing whistleblowers.
In a statement, the watchdog said that the JP Morgan Securities (JPMS) business had been charged with “impeding hundreds of advisory clients and brokerage customers from reporting potential securities law violations to the SEC.”
According to the SEC’s order, from March 2020 through July 2023, JPMS regularly asked retail clients to sign confidential release agreements if they had been issued a credit or settlement from the firm of more than $1,000.
The agreements required the clients to keep confidential the settlement, all underlying facts relating to the settlement, and all information relating to the account at issue, the SEC said, adding that even though the agreements permitted clients to respond to SEC inquiries, they did not permit clients to voluntarily contact the SEC.
JPMS was found to have violated Rule 21F-17(a) under the Securities Exchange Act of 1934, a whistleblower protection rule that prohibits taking any action to impede an individual from communicating directly with the SEC staff about possible securities law violations.
The bank did not admit or deny the filings, but agreed to be censured, to cease and desist from violating the whistleblower protection rule, and to pay the $18 million civil penalty.
Commenting on the fine, Gurbir S. Grewal, director of the SEC’s Division of Enforcement, said: “Whether it’s in your employment contracts, settlement agreements or elsewhere, you simply cannot include provisions that prevent individuals from contacting the SEC with evidence of wrongdoing.
“But that’s exactly what we allege JP Morgan did here. For several years, it forced certain clients into the untenable position of choosing between receiving settlements or credits from the firm and reporting potential securities law violations to the SEC. This either-or proposition not only undermined critical investor protections and placed investors at risk, but was also illegal.”
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