J.P. Morgan Securities will pay $200,000 to settle claims by the Financial Industry Regulatory Authority that the firm failed to adequately supervise two brother representatives accused of abusing their grandmother’s account between March 2014 and March 2019, a Finra award filing said yesterday.
The accusation of rogue activity by Evan and Avi Schottenstein in the matter of the $80 million account of Florida resident Beverley Schottenstein resulted in an $18.6 million award last year, for which J.P. Morgan was deemed responsible for $9 million, the filing said.
While the firm promptly paid that $9 million, the remainder of the award is still under contention, leading Ms. Schottenstein, now 96 years old, to tell Bloomberg News, “The heck with them, let the boys go to work, or go to jail. One or the other, I don’t care anymore.”
When reached for comment, J.P. Morgan declined.
Yesterday’s award decision, according to Finra, originated out of J.P. Morgan’s firing of Evan Schottenstein and the subsequent filing of his Form U5, which detailed the firm’s lack of oversight for sales of complex investment products with regard to suitability for the customer.
According to Finra, for five years beginning in March 2014, Evan Schottenstein was responsible for his grandmother’s investment strategy. While J.P. Morgan had written procedures and guidelines for using structured notes in client accounts—such as a 15% threshold for a customer’s liquid net worth—on multiple occasions Evan Schottenstein allegedly blew by the threshold under supervision.
“[Beverley Schottenstein’s] concentration in structured products rose from 14% of her liquid net worth in June 2014, to 25% in July 2014, to a high of 43% in August 2014,” Finra said. “Despite this concentration exceeding the firm’s 15% guideline, the firm did not contact [her] or otherwise discuss her understanding of the risks of the concentrated position in structured notes.”
In addition, in May 2015, Evan Schottenstein allegedly falsely updated his grandmother’s liquid net worth to $155 million from $100 million in an attempt to avoid further oversight of the account, the filing said.
“The firm, however, did not call the customer, did not investigate the significant addition to her liquid net worth or consider why the increase occurred after the firm began to question [Evan Schottenstein] about [her] structured product holdings,” Finra stated.
Besides ignoring the 15% guideline, Evan Schottenstein also allegedly tampered with his grandmother’s account statement delivery address and made unauthorized trades, none of which were detected or reasonably investigated by the firm. By 2019, the structured notes in Beverley Schottenstein’s account had realized losses of $5.5 million, the filing said.
On Jan. 8, 2019, Beverley Schottenstein complained to J.P. Morgan about the unauthorized trading, and in July that year filed an arbitration proceeding with Finra. In February 2021, an arbitration panel awarded her $18.6 million, of which the firm was ordered to pay a total of $9 million. Evan Schottenstein owed $9 million, and his brother $602,251.