JP Morgan Fined $200 Million for Employees Using Messaging Apps & WhatsApp
24th December 2021 | Hong Kong
The United States Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) have fined JP Morgan a total of $200 million for failing to prevent employees from using unapproved communication channels such as messaging apps, text messages and WhatsApp. The United States Securities and Exchange Commission (SEC) fined JP Morgan $125 million and the Commodity Futures Trading Commission (CFTC) fined JP Morgan $75 million.
“ JP Morgan Fined $200 Million for Employees Using Messaging Apps & WhatsApp “
Official Statement from United States SEC
The Securities and Exchange Commission today announced charges against J.P. Morgan Securities LLC (JPMS), a broker-dealer subsidiary of JPMorgan Chase & Co., for widespread and longstanding failures by the firm and its employees to maintain and preserve written communications. JPMS admitted the facts set forth in the SEC’s order and acknowledged that its conduct violated the federal securities laws, and agreed to pay a $125 million penalty and implement robust improvements to its compliance policies and procedures to settle the matter.
“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,” said SEC Chair Gary Gensler. “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.”
As described in the SEC’s order, JPMS admitted that from at least January 2018 through November 2020, its employees often communicated about securities business matters on their personal devices, using text messages, WhatsApp, and personal email accounts. None of these records were preserved by the firm as required by the federal securities laws. JPMS further admitted that these failures were firm-wide and that practices were not hidden within the firm. Indeed, supervisors, including managing directors and other senior supervisors – the very people responsible for implementing and ensuring compliance with JPMS’s policies and procedures – used their personal devices to communicate about the firm’s securities business.
JPMS received both subpoenas for documents and voluntary requests from SEC staff in numerous investigations during the time period that the firm failed to maintain required records. In responding to these subpoenas and requests, JPMS frequently did not search for relevant records contained on the personal devices of its employees. JPMS 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. As such, the firm’s actions meaningfully impacted the SEC’s ability to investigate potential violations of the federal securities laws.
“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,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “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.”
“As today’s order reflects, JPMorgan’s failures hindered several Commission investigations and required the staff to take additional steps that should not have been necessary,” said Sanjay Wadhwa, Deputy Director of Enforcement. “This settlement reflects the seriousness of these violations. Firms must share the mission of investor protection rather than inhibit it with incomplete recordkeeping.”
JPMS agreed to the entry of an order in which it admitted to the SEC’s factual findings and its conclusion that JPMS’s conduct violated Section 17(a) of the Securities Exchange Act of 1934 and Rules 17a-4(b)(4) and 17a-4(j) thereunder, and that the firm failed reasonably to supervise its employees with a view to preventing or detecting certain of its employees’ aiding and abetting violations. JPMS was ordered to cease and desist from future violations of those provisions, was censured, and was ordered to pay the $125 million penalty. JPMS also agreed to retain a compliance consultant to, among other things, conduct a comprehensive review of its policies and procedures relating to the retention of electronic communications found on personal devices and JPMS’s framework for addressing non-compliance by its employees with those policies and procedures.
As a result of the findings in this investigation, the SEC has commenced additional investigations of record preservation practices at financial firms. Firms that believe that their record preservation practices do not comply with the securities laws are encouraged to contact the SEC at [email protected].
Official Statement Commodity Futures Trading Commission
The Commodity Futures Trading Commission today issued an order simultaneously filing and settling charges against JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC, and J.P. Morgan Securities plc (collectively, JPMorgan), for failing to maintain, preserve, and produce records that were required to be kept under CFTC recordkeeping requirements, and failing to diligently supervise matters related to its businesses as CFTC registrants. JPMorgan admits the facts in the order and acknowledges that the conduct violated the Commodity Exchange Act (CEA) and regulations.
The order finds that since at least July 2015, JPMorgan employees, including those at senior levels, communicated both internally and externally on unapproved channels, including via personal text messages and WhatsApp messages. These written communications included messages related to JPMorgan’s businesses as CFTC registrants that were required to be maintained under CFTC-mandated recordkeeping requirements. None of these written communications were maintained and preserved by JPMorgan, and they were not able to be furnished promptly to a CFTC representative when requested.
The order further finds that the widespread use of unauthorized communication methods by JPMorgan’s employees to conduct firm business violated JPMorgan’s own policies and procedures, which prohibited such communications. JPMorgan did not maintain adequate internal controls with respect to business-related communications on non-approved communication methods. Some of the very same supervisory personnel at JPMorgan responsible for ensuring compliance with JPMorgan’s policies and procedures utilized non-approved methods of communication to engage in business-related communications, in violation of firm policy. The order requires JPMorgan to pay a $75 million civil monetary penalty, to cease and desist from further violations of recordkeeping and supervision requirements, and to engage in specified remedial undertakings.
“Maintenance of complete and accurate books and records is required in order to operate in our industry, as is diligent supervision,” said Acting Chairman Rostin Behnam. “Registrants, supervisors, and compliance officers must understand these regulations and adhere to them and their firm’s guidance when conducting their business. The message of today’s enforcement action could not be more clear: the Division of Enforcement will aggressively investigate potential recordkeeping and related supervision violations, and the Commission will impose appropriate penalties for violations of these critical regulatory requirements.”
“Firm compliance with recordkeeping and associated supervision requirements is essential to the CFTC’s efforts to promote the integrity, resilience, and vibrancy of the U.S. derivatives markets,” said Acting Director of Enforcement Vince McGonagle. “Today’s enforcement action demonstrates the Division of Enforcement’s commitment to aggressively investigating and prosecuting violations of these requirements.”
Case Background
The order notes that during the course of a CFTC investigation into certain of JPMorgan’s trading, CFTC staff issued subpoenas to JPMorgan for certain communications. The Division of Enforcement learned, based on communications received from a third party, that JPMorgan traders had been using personal text messages and WhatsApp to communicate. Moreover, certain of those communications were responsive to the CFTC’s subpoenas.
After CFTC staff brought the use of unapproved communication methods by certain of JPMorgan’s traders to JPMorgan’s attention, JPMorgan notified CFTC staff that the firm was aware of widespread and longstanding use by JPMorgan employees of unapproved methods to engage in business-related communications.
As a result of JPMorgan’s failure to ensure that employees—including supervisors and senior-level employees—complied with the firm’s communications policies and procedures, JPMorgan failed to maintain thousands of business-related communications in connection with its commodities and swaps businesses, and thus failed diligently to supervise its businesses as CFTC registrants, in violation of CFTC recordkeeping and supervision provisions.
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