SEC Imposes $18M Fine on JP Morgan for Whistleblower Violations

The Securities and Exchange Commission ordered J.P. Morgan Securities to pay a fine of $18 million and to cease and desist from further violations of SEC whistleblower rules on Tuesday.

According to the SEC’s order, JPMS obstructed “hundreds of advisory clients and brokerage customers from reporting potential securities law violations to the SEC” by requiring them to sign non-disclosure agreements when receiving settlements from JPMS of at least $1,000. This practice took place from March 2020 to June 2023, according to the charges.

A total of 362 clients were required to sign these agreements over the covered time period, with settlements ranging from $1,000 to $165,000.

The agreements barred clients from contacting the SEC to voluntarily report any legal violations, though the contract stated they could respond to direct SEC inquiries. According to the SEC’s press release, “The agreements required the clients to keep confidential the settlement, all underlying facts relating to the settlement, and all information relating to the account at issue,” including to the SEC itself.

SEC Rule 21F-17, effective since August 2011, makes it a violation to “take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement … with respect to such communications,” according to the order. The order explained that it is unlawful to issue contracts that forbid reporting potential wrongdoing to the SEC.

In addition to the fine and the cease-and-desist order, JPMS agreed to take certain remedial actions. JPMS removed the offending language from settlement documents and contacted clients who had previously received the notice to inform them that they are free to report wrongdoing to the SEC.