JPMorgan Fined $200 Million Over Employees’ Use of WhatsApp and Other Messaging Apps
Brokerage admits failure to monitor and record use of forbidden apps
The SEC’s enforcement division started investigations of other brokerages after spotting JPMorgan’s failures, officials said.PHOTO: BRENDAN MCDERMID/REUTERS
By
Dave Michaels Follow
Updated Dec. 17, 2021 9:31 am ET
WASHINGTON—The brokerage arm of JPMorgan Chase & Co. on Friday agreed to pay $200 million in fines and admit that it failed to keep track of employees’ use of personal messaging apps that circumvented record-keeping requirements.
The Securities and Exchange Commission said its fine, $125 million, is the largest ever for a breach of rules requiring brokerages to retain most communications so the data can be monitored internally and made available to regulators. The SEC said the breakdown was widespread and hindered some enforcement investigations, which often make use of what individuals write in emails and other messaging channels.
JPMorgan also will pay $75 million to resolve a parallel investigation by the Commodity Futures Trading Commission, according to that agency. The Wall Street Journal reported earlier this week that the bank would pay a likely total fine of $200 million. A JPMorgan spokesman declined to comment.
The SEC’s enforcement division started investigations of other brokerages after spotting JPMorgan’s failures, officials said. Additional firms could come under investigation if they self-report potential misconduct, as regulators have requested.
Traders, salespeople and bankers once talked prices or market gossip on recorded phone lines or desktop messaging software that was digitally archived. They now have personal cellphones with multiple options for chatting with others, including encrypted apps such as WhatsApp. JPMorgan’s policies prohibited the use of those apps for firm business, but officials said the firm didn’t adequately supervise whether employees followed the rules.
“Record-keeping 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 Grewal, the SEC’s enforcement director.
JPMorgan’s settlement is the first to involve an admission of misconduct since Mr. Grewal said in October that the SEC would deviate from “no admit, no deny” settlements in some of its civil cases. Mr. Grewal said at the time that officials would seek admissions in cases where wrongdoing was widespread or particularly egregious, or where many investors were harmed. JPMorgan also admitted misconduct in its settlement with the CFTC.
Monitoring employees’ communications became harder for banks during the pandemic when employees switched to working from home. But the SEC said the record-keeping breakdown preceded the migration out of offices, lasting from at least January 2018 until November 2020.
Regulators identified over 100 people at J.P. Morgan Securities LLC and tens of thousands of messages that weren’t properly retained by the firm, officials said. Some communications were never recovered or identified, officials said.
The messages involved discussion of investment strategies, client meetings, and views on daily market events as well as trends people were tracking. The SEC said its investigation is continuing, a sign that regulators could eventually accuse individuals of wrongdoing.
In addition to the fine, JPMorgan agreed to hire a compliance consultant to review how it oversees employee communications on personal cellphones and recommend any needed improvements. The bank has begun improving how it trains and oversees employee communications, according to a settlement order with the SEC.
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