JPMorgan Chase & Co. has reached a settlement with the U.S. Securities and Exchange Commission (SEC) and agreed to pay an $18 million fine. The bank faced charges of violating whistleblower protection rules through its use of confidentiality agreements during a three-year period.
Confidentiality Release Agreements
According to the SEC, JPMorgan regularly required retail clients and brokerage customers to sign confidentiality release agreements when receiving credits or settlements exceeding $1,000. These agreements restricted clients from voluntarily contacting the SEC, although they allowed for responses to SEC inquiries.
The SEC investigation revealed that this practice started in March 2020 and continued until July 2023, indicating a three-year duration.
Infringing on Whistleblower Rights
Gurbir S. Grewal, director of the SEC’s enforcement division, expressed concern about the inclusion of provisions that hinder individuals from reporting wrongdoing to the SEC. "Whether it’s in your employment contracts, settlement agreements or elsewhere, you simply cannot include provisions that prevent individuals from contacting the SEC with evidence of wrongdoing," Grewal stated.
Repercussions for Clients
The SEC emphasized that these confidentiality agreements placed certain clients in a difficult position. They were forced to choose between receiving settlements or credits from JPMorgan and reporting potential securities law violations to the SEC.
Upholding Whistleblower Rights
The SEC's whistleblower rule expressly prohibits actions that impede an individual from directly communicating with the SEC staff regarding possible securities law violations.
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