The Securities and Exchange Commission (SEC) has charged broker-dealer J.P. Morgan Securities (JPMS) for widespread and longstanding failures to maintain and preserve written communications.
JPMS, a subsidiary of JPMorgan Chase, acknowledged that its conduct violated federal securities laws. The company agreed to pay a $125 million penalty and implement improvements to its compliance policies and procedures.
“Since the 1930s, recordkeeping and books-and-records obligations have been an essential part of market integrity and a foundational component of the SEC’s ability to be an effective cop on the beat. As technology changes, it’s even more important that registrants ensure that their communications are appropriately recorded and are not conducted outside of official channels in order to avoid market oversight,” SEC Chair Gary Gensler said. “Unfortunately, in the past we’ve seen violations in the financial markets that were committed using unofficial communications channels, such as the foreign exchange scandal of 2013. Books-and-records obligations help the SEC conduct its important examinations and enforcement work. They build trust in our system. Ultimately, everybody should play by the same rules, and today’s charges signal that we will continue to hold market participants accountable for violating our time-tested recordkeeping requirements.”
According to the SEC, from at least January 2018 through November 2020, JPMS employees often communicated about securities business matters on their personal devices, using text messages, WhatsApp, and personal email accounts. Further, none of these records were preserved by the firm as required by the federal securities laws. JPMS admitted these failures were firm-wide and that practices were not hidden within the firm. The SEC said supervisors, including managing directors, used their personal devices to communicate about the firm’s securities business.
Also, the SEC said that JPMS received subpoenas for documents and voluntary requests from SEC staff during the time period, but the company did not search for relevant records contained on the personal devices of its employees. As such, the firm’s actions meaningfully impacted the SEC’s ability to investigate potential violations, requiring SEC staff to take additional steps that should not have been necessary.
“Recordkeeping requirements are core to the Commission’s enforcement and examination programs and when firms fail to comply with them, as JPMorgan did, they directly undermine our ability to protect investors and preserve market integrity,” Gurbir Grewal, director of the SEC’s Division of Enforcement, 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.”
JPMS was ordered to pay the $125 million penalty and agreed to conduct a review of its policies and procedures relating to the retention of electronic communications found on personal devices. Separately, the Commodity Futures Trading Commission announced a settlement with JPMS and affiliated entities for related conduct.
As a result of this investigation, the SEC has commenced additional investigations of record preservation practices at financial firms.