In a FINRA arbitration case against J.P. Morgan Securities LLC (JPMS), a broker-dealer subsidiary of JPMorgan Chase & Co., a self-directed investment account customer alleged that JPMS engaged in fraudulent and dishonest practices. The customer alleged that her account documents were altered/changed after she confronted JPMS about unauthorized trading activity in a non-discretionary self-directed cash account.
The customer provided her account statements that showed many unauthorized trades of FULL shares of multiple securities with corresponding realized losses and wash sales. Instead of providing an explanation, JPMS changed the account statements. The customer printed both statements (original and altered).
Strangely, one set of account statement showed sales of full shares with corresponding losses, while the questionable trades magically disappeared from the second set of investment account documents. Despite tangible evidence, JPMS denied that trades ever occurred and blocked the customer’s online access to her online investment account. JPMS could not explain how many full share sales of multiple securities were noted on the original statements but disappeared on the altered statements. The changed statements did not say ‘corrected’.
The industry expert hired for this case wrote in her opinion report that
“…In addition to the issue of palpable confusion and conflicting information from these documents, there appears to be no reasonable explanation as to why JPMS documents would show “realized” short-term loss if, in fact, these were not trades.”
In the FINRA arbitration, the customer sent three subpoena requests to JPMS to get her account documents. JPMS objected to produce many discovery documents. Eventually, the customer filed two motions to compel discovery with FINRA arbitration. The arbitration panel ordered JPMS to produce ALL documents related to the customer’s account including JPMS’ employee communication regarding customer’s complaints.
JPMS dragged its feet and despite arbitration panel’s explicit order, did not produce all discovery documents. After the second motion to compel was filed, JPMS produced some more documents, which showed that even the JPMS staff questioned the accuracy of JPMS bookkeeping team.
In 2021, JPMS agreed to pay a $125 million penalty to SEC. Excerpts from the SEC press release are below.
“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.”
“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.”
“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.”
More info about SEC order can be found at https://www.sec.gov/news/press-release/2021-262
Full court order can be found at https://www.sec.gov/files/litigation/admin/2021/34-93807.pdf