NEW YORK - The Securities and Exchange Commission (SEC) has imposed an $18 million fine on JPMorgan Chase & Co. (NYSE:JPM) for obstructive clauses in customer agreements that hindered whistleblowing. These "confidential release agreements" silenced clients from discussing potential securities law violations after receiving "credits or settlements," which undermined investor protections by barring voluntary contact with the SEC. The agreements, which were active from March 2020 until July 2023, impacted more than 362 retail and brokerage clients, contravening Dodd-Frank Act whistleblower protections.This enforcement action by the SEC comes in the wake of a similar incident where investment firm D.E. Shaw & Co. was penalized $10 million for violating whistleblower protection rules. The contentious clauses offered financial settlements or credits to customers ranging from $1,000 to $165,000. However, they stipulated that customers could not initiate contact with regulators regarding possible legal infractions.JPMorgan has responded to the SEC's findings by amending these restrictive clauses and reaching out to former clients to reaffirm their right to report any suspected violations to government or regulatory entities, including the SEC. The firm "regularly asked clients" receiving over US$1000 to refrain from disclosing settlement specifics, thereby impeding proactive communications with regulatory agencies.J.P. Morgan Securities consented today to a cease and desist order related to this matter without admitting any wrongdoing. This step is part of the settlement agreement with the SEC and signifies an end to this particular regulatory issue for the firm today.Gurbir Grewal, Enforcement division chief, criticized the firm for its illegal practices that jeopardized investor safeguards by presenting an either-or proposition regarding settlements or reporting potential violations. Despite not conceding guilt, the firm agreed to censure and cease such practices while paying the fine. Following notice from the SEC, J.P. Morgan Securities updated their release agreements to ensure clients knew they weren't barred from reporting to regulators.An important detail regarding these restrictive clauses is that retail clients who received credits or settlements larger than $1,000 from J.P. Morgan Securities between March 2020 and July 2023 were coerced into signing non-disclosure agreements that prohibited them from contacting the SEC about potential securities law violations. This further highlights the extent of the firm's efforts to discourage whistleblowing among its clients, which has led to the $18 million settlement that J.P. Morgan Securities agreed to today to resolve these allegations.By breaching Rule 21F-17(a), J.P. Morgan consented to pay the $18 million fine and pledged to "cease violating whistleblower rule," albeit without admitting any wrongdoing. The SEC stressed that such agreements "undermined investor protections" by preventing voluntary contact with the agency, infringing upon crucial rights designed to safeguard whistleblowers and maintain market integrity.
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