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Compliance July 6, 2023
J.P. Morgan Fined $4M for Recordkeeping and Outsourcing Failures
The SEC penalty addressed recordkeeping issues including the early deletion of 47 million emails.
Reported by Paul Mulholland
The Securities and Exchange Commission has ordered J.P. Morgan Securities LLC, a subsidiary of J.P. Morgan & Co., to pay a $4 million fine and to cease violating recordkeeping requirements under securities laws.
The SEC found that J.P. Morgan had begun deleting communications that they were no longer legally required to maintain from the 1970s and 1980s, according to a filing by the SEC. During this process, employees of J.P. Morgan deleted records in 2019 that had been created early in 2018, and therefore not past the 36-month period in which they are legally required to maintain those records.
The SEC noted that J.P. Morgan had outsourced recordkeeping functions to an unnamed vendor. According the regulator, that vendor had assured J.P. Morgan and FINRA that communications that are legally required to be kept, such as those younger than 36 months, were coded in a way that made it impossible to delete them, even deliberately.
This function was not working on many communications from early 2018, and 47 million emails were permanently deleted in the troubleshooting process from approximately 7,500 employees, according to the SEC.
The regulator says the missing emails limited the scope of investigations and other legal inquiries.
“In at least twelve civil securities-related regulatory investigations, eight of which were conducted by the Commission staff, J.P. Morgan received subpoenas and document requests for communications which could not be retrieved or produced because they had been deleted permanently,” the SEC wrote.
J.P. Morgan Securities wrote that it has since updated its information policies. Now the firm codes communications to be deleted in-house and trains employees to never attempt to delete legally protected communications without approval from a senior information officer.
J.P. Morgan Securities is registered as a broker/dealer and, violated Section 17(a) of the Exchange Act. They had previously been fined $125 million by the SEC in December 2021 for separate recordkeeping failures.