JP Morgan Faces $4 Million Penalty from SEC for Misconduct

Yesterday, JP Morgan Chase faced a significant setback as the US Securities and Exchange Commission (SEC) fined the banking giant $4 million.

The penalty was imposed on JP Morgan Securities LLC, a subsidiary of JP Morgan Chase, for deleting approximately 47 million emails from over 8,700 inboxes.

These emails, which should have been retained as business records under the Exchange Act and Rule, were related to the period from January to April 2018. Let’s dive into the details of this administrative offense and its implications.

Miscommunication and Mistaken Deletion The SEC’s order reveals that JP Morgan initiated a project in 2016 to delete older documents and communications that were no longer required to be retained by law.

However, in the process, they mistakenly deleted documents and communications that should have been retained for a specific period.

Glitches in the deletion tasks further complicated the situation. In June 2019, while troubleshooting the issue, JP Morgan employees executed deletion tasks on electronic communications from the first quarter of 2018, mistakenly believing that all documents were coded to prevent permanent deletion within the regulatory retention period.

Unrecoverable Loss and Fine Due to the incorrect retention settings applied by a third-party retention service provider, many of the communications that should have been retained were permanently deleted and are now unrecoverable.

The SEC deemed this violation of Sections 17(a) and 17a-4(b)(4) of the Exchange Act, which mandates the retention of communications for at least three years, as deliberate.

Considering the potential impact on ongoing investigations, legal matters, and regulatory inquiries, the SEC imposed a hefty $4 million fine on JP Morgan. Failure to pay the fine within the specified time will incur additional interest charges.

Implications and Public Interest: The severity of the fine in relation to the offense stems from the deliberate violation and potential impact on investigations.

JP Morgan had received subpoenas and document requests in multiple securities-related investigations, some of which were conducted by the SEC itself.

The loss of critical documents and communications raises concerns about the effect on these investigations.

Additionally, the SEC highlighted that JP Morgan’s notification of the lost records only occurred in one of the SEC’s eight investigations related to the matter. The SEC determined that the fine serves the public interest in ensuring compliance and preserving crucial evidence.