In a case that has industry-wide ramifications, J.P. Morgan Securities LLC (JPMS) agreed to pay $125 million after admitting to SEC charges that its employees and executives engaged in “widespread and longstanding failures” to maintain and preserve written communications, which hindred investigations, the agency announced today.
The broker-dealer subsidiary of JPMorgan Chase & Co. admitted that from at least January 2018 through November 2020 its employees often and openly communicated about securities business matters on their personal devices, using text messages, WhatsApp and personal email accounts, according to the SEC’s order.
“None of these records were preserved by the firm as required by the federal securities laws,” the agency said in a statement. The firm also “failed reasonably to supervise its employees with a view to preventing or detecting certain of its employees’ aiding and abetting violation.”
According to the SEC’s charging documents, JPMS “further admitted that these failures were firm-wide and that practices were not hidden within the firm. Indeed, supervisors, including managing directors and other senior supervisors—the very people responsible for implementing and ensuring compliance with JPMS’s policies and procedures—used their personal devices to communicate about the firm’s securities business.”
The regulator also found that JPMS did not search for relevant records contained in employees’ personal devices when the firm responded to numerous subpoenas for documents and voluntary requests from SEC staff “in numerous investigations.” Instead, staff had to turn to third-party vendors to obtain communications, the SEC said.
JPMS acknowledged that its recordkeeping failures “deprived the SEC staff of timely access to evidence and potential sources of information for extended periods of time and in some instances permanently. As such, the firm’s actions meaningfully impacted the SEC’s ability to investigate potential violations of the federal securities laws,” the agency added.
“JPMorgan’s failures hindered several commission investigations and required the staff to take additional steps that should not have been necessary,” Sanjay Wadhwa, deputy director of enforcement, said in a statement. “This settlement reflects the seriousness of these violations. Firms must share the mission of investor protection rather than inhibit it with incomplete recordkeeping.”
The JPMS findings have kicked of additional investigations into how firms preserve records and is encouraging firms to self report records retention violations, the SEC said.
“We encourage registrants to not only scrutinize their document preservation processes and self-report failures such as those outlined in today’s action before we identify them, but to also consider the types of policies and procedures JPMorgan implemented to redress its failures in this case,” said Gurbir S. Grewal, director of the SEC’s Division of Enforcement.
In addition to hiring a consultant and performing an internal audit and sharing the results with the SEC, JPMS has agreed to a censure and to report all employee discipline over violations of electronic communications preservation to the SEC for two years.