J.P. Morgan Settles with SEC for $18 Million Over Whistleblower Protection Violation

J.P. Morgan Securities LLC (JPMS) has agreed to pay an $18 million civil penalty to settle charges brought by the Securities and Exchange Commission (SEC). The charges relate to JPMS impeding advisory clients and brokerage customers from reporting potential securities law violations to the SEC, a violation of the Whistleblower Protection Rule.

The SEC's order, announced today, reveals that JPMS, from March 2020 through July 2023, regularly required retail clients to sign confidential release agreements. These agreements were mandated for clients who had received a credit or settlement from the firm exceeding $1,000. The confidentiality agreements obligated clients to keep the settlement and all related information confidential. Notably, clients were restricted from voluntarily contacting the SEC, although they were allowed to respond to SEC inquiries.

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, emphasized the illegality of such practices, stating, “Whether it’s in your employment contracts, settlement agreements, or elsewhere, you simply cannot include provisions that prevent individuals from contacting the SEC with evidence of wrongdoing. But that’s exactly what we allege J.P. Morgan did here."

The SEC alleges that J.P. Morgan forced certain clients into a difficult choice between receiving settlements or credits from the firm and reporting potential securities law violations to the SEC. This, according to the SEC, not only undermined critical investor protections but also exposed investors to risks.

Corey Schuster, Co-Chief of the Enforcement Division’s Asset Management Unit, stressed the importance of investors being free to report complaints to the SEC without any interference. He noted that those involved in drafting or using confidentiality agreements must ensure that such agreements do not impede potential whistleblowers.

The SEC’s order specifically finds that JPMS violated Rule 21F-17(a) under the Securities Exchange Act of 1934. This rule serves as a whistleblower protection measure, prohibiting actions that impede individuals from communicating directly with the SEC staff about possible securities law violations. Without admitting or denying the SEC’s findings, JPMS agreed to be censured, to cease and desist from violating the whistleblower protection rule, and to pay the $18 million civil penalty.

This settlement serves as a reminder of the regulatory scrutiny surrounding whistleblower protection and underscores the SEC's commitment to ensuring a transparent and accountable financial system.

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