Dive Brief:
- JPMorgan Chase has agreed to pay a $125 million penalty to the Securities and Exchange Commission (SEC) and another $75 million to the Commodity Futures Trading Commission (CFTC) over failures to maintain and preserve written communications, the regulators announced Friday.
- The SEC said the bank admitted to bookkeeping failures between January 2018 and November 2020 involving employees using unofficial communications channels, such as WhatsApp messages and personal devices to send texts and emails about company business.
- None of the records were preserved by the bank as required by federal securities laws, the SEC said, adding the bank admitted the failures were firmwide and were not hidden within the bank. The nation’s largest bank agreed to implement "robust improvements to its compliance policies and procedures to settle the matter," the regulator said.
Dive Insight:
JPMorgan’s communications failures involved supervisors, including managing directors and other senior employees, who used their personal devices to communicate about the firm’s securities business.
"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," SEC Chair Gary Gensler said in a statement Friday. "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."
The penalties were note entirely unexpected. Bloomberg reported last Friday the bank could pay around $200 million before the end of the year to settle the regulators' probe.
The wire service reported in June the bank had ordered staff to save relevant text messages from as early as 2018 made on personal devices and on platforms such as WeChat and WhatsApp until the company’s legal department informed them otherwise, noting that failure to comply could lead to "consequences."
JPMorgan has given several updates in the past months regarding the SEC probe. The bank said in August it was "engaged in certain resolution discussions" with regulators "concerning its compliance with records preservation requirements in connection with business communications sent over electronic messaging channels that have not been approved by the Firm." A filing last month contained the same language but described the discussions as "advanced."
JPMorgan bankers have installed the call-recording app Movius on their work phones, and employees also must regularly attest they will not use messaging apps for work material.
SEC officials said the $125 million penalty levied against the bank is its largest recordkeeping fine to date, according to CNBC.
As a result of the findings in its investigation of JPMorgan, the SEC said it has begun to probe record preservation practices at other financial firms.
In recent months, regulators have questioned Bank of America, Citi, Morgan Stanley and Credit Suisse about how they track employee communications, sources told The Wall Street Journal this week.
"Books-and-records obligations help the SEC conduct its important examinations and enforcement work. They build trust in our system," Gensler said in Friday's statement. "Ultimately, everybody should play by the same rules, and today’s charges signal that we will continue to hold market participants accountable for complying with our time-tested recordkeeping requirements."
JPMorgan declined to comment but wrote in a securities filing Friday that "the SEC and CFTC found [the company] did not maintain copies of certain communications required to be maintained under their respective record keeping rules, where such communications were sent or received by employees over electronic messaging channels that had not been approved for employee use."
The SEC said that throughout the time frame that the bank failed to maintain required records, JPMorgan received subpoenas for documents and voluntary requests from the regulator’s staff in numerous investigations.
"In responding to these subpoenas and requests, [JPM Securities] frequently did not search for relevant records contained on the personal devices of its employees," the SEC said.
The bank 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, the SEC said.
"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 at the SEC, said in a statement Friday. "This settlement reflects the seriousness of these violations. Firms must share the mission of investor protection rather than inhibit it with incomplete recordkeeping."
