By including confidentiality provisions in settlement agreements with harmed clients, J.P. Morgan Securities LLC violated whistleblower protection rules, the U.S. Securities and Exchange Commission (SEC) says.
Without admitting or denying the allegations, J.P. Morgan agreed to pay US$18 million to resolve the SEC’s allegations that the firm’s confidential agreements with clients impeded them from contacting the regulator to report wrongdoing.
According to the SEC’s order, between March 2020 and July 2023, the firm regularly asked retail clients who reached settlements or received credits of at least US$1,000 from the firm to sign confidential release agreements.
These agreements required the clients to keep the details of their settlements secret, including all the underlying facts relating to the settlements.
While the agreements permitted clients to respond to SEC inquiries, they did not permit clients to voluntarily contact the SEC, it said.
“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,” said Gurbir Grewal, director of the SEC’s division of enforcement, in a release.
For several years, Grewal said, J.P. Morgan forced certain clients to choose between receiving settlements or credits from the firm and reporting potential securities law violations to the SEC.
“This either-or proposition not only undermined critical investor protections and placed investors at risk, but was also illegal,” he said.
Corey Schuster, co-chief of the enforcement division’s asset management unit, said investors must be free to report complaints. “Those drafting or using confidentiality agreements need to ensure that they do not include provisions that impede potential whistleblowers,” he said in the release.
A spokesperson for JP Morgan said: “We take our regulatory obligations seriously and promptly took action to resolve this issue.”