JPMorgan hit with $18 Million for silencing whistleblowers
A subsidiary of JPMorgan Chase has agreed to pay an $18 million fine to the Securities and Exchange Commission (SEC) for violating whistleblower protection rules. This penalty ranks as one of the largest imposed by the regulator for breaches of this particular rule.
The SEC’s allegations claim that J.P. Morgan Securities prevented hundreds of its advisory clients and brokerage customers from reporting potential violations of securities laws. The firm allegedly required these clients to sign confidential release agreements that included prohibitive language against such reporting.
From March 2020 to July 2023, J.P. Morgan Securities reportedly asked retail clients who received a credit or settlement exceeding $1,000 to sign agreements mandating confidentiality about the settlements and related account information. According to the SEC, at least 362 clients have signed these releases since 2020, receiving amounts ranging from $1,000 to $165,000.
The SEC highlighted that while these confidentiality agreements permitted clients to respond to regulatory inquiries, they did not allow clients to voluntarily contact the SEC or other regulators to report potential misconduct. This practice is a violation of the whistleblowing protection rules established under the 2010 Dodd-Frank Act. These rules prohibit any actions that could impede an individual from directly communicating with SEC staff about possible violations of securities law, including enforcing or threatening to enforce confidentiality agreements over communication with the SEC.
J.P. Morgan Securities, in settling with the SEC, did not admit to or deny the findings. The firm agreed to be censured, to cease and desist from future violations, and to pay the civil penalty of $18 million. A spokesperson for the company stated, “We take our regulatory obligations seriously and promptly took action to resolve this issue.”
Following the SEC’s notice about the violation, J.P. Morgan revised the confidentiality release section in question and informed clients who had signed the release that they are not prohibited from reporting to regulators.
The SEC has increasingly targeted companies whose employment contracts contain language that could deter employees from reporting potential misconduct to regulators. This includes a $10 million fine imposed against hedge fund D.E. Shaw in September for similar violations.
The settlement with J.P. Morgan is notably one of the first cases brought under the whistleblower rule that specifically relates to a firm’s settlement agreements with its clients. SEC’s enforcement division chief Gurbir Grewal remarked that J.P. Morgan’s releases put clients in a difficult position, forcing them to choose 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,” he added.