Prevented Numerous Regulatory Investigations; Prevented Other Member Firms and Public from Learning About Allegations Including Misappropriation of Funds
WASHINGTON—FINRA today announced it has censured and fined J.P. Morgan Securities LLC (JPMS) $1.1 million for failing to timely disclose 89 internal reviews or allegations of misconduct by its registered representatives and associated persons spanning a six-year period. FINRA also required an undertaking by the firm to certify within 60 days that it has taken appropriate corrective measures.
Broker-dealers are required to file with FINRA a Uniform Termination Notice for Securities Industry Registration (Form U5) within 30 days of terminating a registered representative’s association and to file an amendment with FINRA within 30 days of learning that anything previously disclosed on the Form U5 is inaccurate or incomplete. Firms must disclose, among other information, allegations involving fraud, wrongful taking of property, or violations of investment-related statutes, regulations, rules or industry standards of conduct. FINRA uses this information to help identify and investigate potential misconduct, and sanction individuals as appropriate. State securities regulators and other regulators use the information to make informed regulatory and licensing decisions. Member firms use this information to make informed hiring decisions, and investors use this information—displayed through FINRA’s BrokerCheck—when considering whether to do business with a registered or formerly registered person.
FINRA found that from January 2012 to April 2018, JPMS failed to disclose, or timely disclose, 89 internal reviews or allegations of misconduct by its registered representatives and associated persons, including misappropriation of customer and company funds, borrowing from customers, forgery or falsification or alteration of documents, unauthorized trading, making unsuitable recommendations, structuring and other suspicious activity. When JPMS eventually filed the required information with FINRA, it was, on average, more than two years late. This prevented or delayed FINRA, other regulators, member firms, and the public from learning about the allegations. JPMS’ delays prevented FINRA from pursuing potential disciplinary action against 30 former JPMS representatives over whom FINRA’s jurisdiction expired before JPMS disclosed the allegations. These failures resulted primarily from the firm’s failure to establish and maintain reasonably designed written supervisory procedures and supervisory systems to identify all instances when Form U5 disclosures were necessary.
Susan Schroeder, Executive Vice President of FINRA’s Department of Enforcement, said, “FINRA member firms have a responsibility to their fellow member firms, to FINRA and other regulators, and to the investing public to disclose allegations of serious misconduct by their registered representatives. Firms must live up to their responsibility as a gatekeeper and disclose allegations in a timely, accurate and complete manner. This disclosure responsibility is essential to providing transparency and maintaining the integrity of our industry.”
In settling this matter, JPMS neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
FINRA is a not-for-profit organization dedicated to investor protection and market integrity. It regulates one critical part of the securities industry – brokerage firms doing business with the public in the United States. FINRA, overseen by the SEC, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit www.finra.org.