JPMorgan Chase & Co. will pay more than $300 million to settle U.S. allegations that it didn't properly inform clients about what the Securities and Exchange Commission called numerous conflicts of interest in how it managed customers' money over a half decade.
The largest U.S. bank by assets profited by putting customers' money into mutual funds and hedge funds that generated fees for the bank but didn't properly disclose it, the SEC said in announcing $267 million in penalties and disgorgement against JPMorgan. The bank agreed to pay $40 million more as part of a parallel action by the Commodity Futures Trading Commission.
The New York-based bank admitted the disclosure failures related to two units that manage money -- its securities subsidiary and its nationally chartered bank -- from 2008 to 2013 in its settlement with the SEC.
JPMorgan said that the omissions were unintentional and that it has since enhanced its disclosures.
"Firms have an obligation to communicate all conflicts so a client can fairly judge the investment advice they are receiving," Andrew Ceresney, director of the SEC Enforcement Division, said in a statement.
The settlement caps roughly two years of investigations during which the government deposed asset-management executives and issued subpoenas for internal documents. The SEC, in its order, said the bank cooperated with commission staff, hired an independent compliance consultant and carried out its recommendations.
While the SEC extracted a record penalty for an asset manager, JPMorgan can continue operating as it has been in one of its most profitable businesses. The total $307 million in fines and disgorgement announced Friday accounts for a bit more than 1 percent of JPMorgan's annual operating profits, or about a month of those at JPMorgan Asset Management.
The settlement doesn't go far enough, said Dennis Kelleher, a lawyer who runs Better Markets, a consumer advocacy group.
"The conduct involves steering clients into proprietary products so brokers get higher commissions and JPMorgan gets good asset-management numbers," said Kelleher, who said the practices remain costly for customers, additional disclosures notwithstanding. "This wasn't a rogue trader. It wasn't an individual employee. It's not a mistake. It's a five-year pattern."
The disclosure weaknesses cited in the settlements "were not intentional and we regret them," said Darin Oduyoye, a JPMorgan spokesman. "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."
JPMorgan agreed to pay a $40 million civil penalty to the Commodity Futures Trading Commission, which also cited $60 million in disgorgement that was part of the SEC settlement.
The bank's settlement with the SEC included a penalty component of $127 million. That surpassed the agency's previous record of $100 million, levied on Alliance Capital Management 11 years ago, according to an SEC spokesman.
With the settlement, the bank moves beyond one of its last major regulatory challenges since the 2008 financial crisis.
JPMorgan has been penalized more than $23 billion in major settlements with U.S. authorities in recent years, in connection with allegations that included conspiring to manipulate foreign-currency rates, allowing the "London Whale" trader to exceed risk limits, failing to flag transactions related to Bernard Madoff's Ponzi scheme and misrepresenting the value of mortgage-backed securities.
Business on 12/19/2015