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.
The Financial Industry Regulatory Authority (FINRA) has named a new Large-Firm Governor - Stephen M. Cutler, Vice Chairman of JPMorgan Chase & Co. - to its Board of Governors. Cutler was appointed to complete the term of former Governor Gregory Fleming, who resigned his board seat earlier this year.Cutler joined JPMorgan as its General Counsel in 2007 from the law firm of WilmerHale in Washington, D.C., where he was a partner and co-chair of the firm's Securities Department. Prior to that, he was the director of the U.S. Securities and Exchange Commission's Enforcement Division. Before joining the SEC in 1999, he was a partner at Wilmer, Cutler & Pickering, where he worked for 11 years.Cutler obtained his bachelor's degree summa cum laude from Yale and his J.D. from Yale Law School, where he was an editor of the Yale Law Journal."Steve brings a valuable perspective and a keen understanding of securities regulation and the industry to FINRA's Board," said FINRA Chairman Jack Brennan. "We welcome Steve and look forward to working with him.""FINRA will benefit from Steve's depth of industry and regulatory knowledge in advancing our mission of protecting investors and ensuring the integrity of our markets," said Robert Cook, FINRA's President and Chief Executive Officer. "We are very fortunate to have Steve join the FINRA Board." . . .
Stephen M. Cutler, Executive Vice President and Vice Chairman of JPMorgan Chase & Co.Mr. Cutler joined the company in 2007 and served as its General Counsel for nearly nine years. Previously, he was a partner at Wilmer Cutler Pickering Hale and Dorr LLP in Washington, D.C., and co-chair of the firm's Securities Department. From 2001 to 2005, Mr. Cutler served as Director of the Securities and Exchange Commission's Division of Enforcement, where he oversaw the Commission's investigations of Enron and WorldCom, as well as those involving NYSE specialists, research analyst conflicts and mutual fund market timing and revenue sharing. Before joining the SEC as Deputy Director of Enforcement in 1999, Mr. Cutler was a partner at Wilmer Cutler & Pickering in Washington, D.C. Mr. Cutler is a 1985 graduate of Yale Law School, where he served as an editor of the Yale Law Journal, and a 1982 graduate (summa cum laude) of Yale University. He is on the boards of the Legal Action Center, the National Women's Law Center and the Metropolitan Museum of Art, and for the last two years, has served as a Visiting Lecturer and co-taught a course at Yale Law School.
https://www.sec.gov/news/pressrelease/2015-283.htmlThe Securities and Exchange Commission today announced that two J.P. Morgan wealth management subsidiaries have agreed to pay $267 million and admit wrongdoing to settle charges that they failed to disclose conflicts of interest to clients.An SEC investigation found that the firm's investment advisory business J.P. Morgan Securities LLC (JPMS) and nationally chartered bank JPMorgan Chase Bank N.A. (JPMCB) preferred to invest clients in the firm's own proprietary investment products without properly disclosing this preference. This preference impacted two fundamental aspects of money management - asset allocation and the selection of fund managers - and deprived JPMorgan's clients of information they needed to make fully informed investment decisions.In a parallel action, JPMorgan Chase Bank agreed to pay an additional $40 million penalty to the U.S. Commodity Futures Trading Commission (CFTC).. .https://www.sec.gov/news/pressrelease/2016-1.htmlThe Securities and Exchange Commission today announced that J.P. Morgan's brokerage business agreed to pay $4 million to settle charges that it falsely stated on its private banking website and in marketing materials that advisors are compensated "based on our clients' performance; no one is paid on commission."JPMorgan Chase Paying $264 Million to Settle FCPA Charges (SEC Press Release / November 17, 2016)An SEC investigation found that although J.P. Morgan Securities LLC (JPMS) did not pay commissions to registered representatives in its U.S. Private Bank, compensation was not based on client performance. Advisors were instead paid a salary and a discretionary bonus based on a number of other factors. . .
The Securities and Exchange Commission today announced that JPMorgan Chase & Co. has agreed to pay more than $130 million to settle SEC charges that it won business from clients and corruptly influenced government officials in the Asia-Pacific region by giving jobs and internships to their relatives and friends in violation of the Foreign Corrupt Practices Act (FCPA).JPMorgan also is expected to pay $72 million to the Justice Department and $61.9 million to the Federal Reserve Board of Governors for a total of more than $264 million in sanctions resulting from the firm's referral hiring practices.Manhattan U.S. Attorney Settles Lending Discrimination Suit Against JPMorgan Chase For $53 Million / Settlement Includes Admissions by the Bank and Provides Compensation for Borrowers Harmed by the Discriminatory Lending Practices (DOJ Press Release / January 20, 2017)According to an SEC order issued today, investment bankers at JPMorgan's subsidiary in Asia created a client referral hiring program that bypassed the firm's normal hiring process and rewarded job candidates referred by client executives and influential government officials with well-paying, career-building JPMorgan employment. During a seven-year period, JPMorgan hired approximately 100 interns and full-time employees at the request of foreign government officials, enabling the firm to win or retain business resulting in more than $100 million in revenues to JPMorgan. . .
The government's data model projects that, from at least 2006 through late 2009, certain of the approximately 106,000 African-American and Hispanic borrowers who obtained loans through independent mortgage brokers participating in Chase's wholesale channel paid higher rates and fees on "wholesale" home mortgage loans compared to the rates and fees paid by similarly situated white borrowers who obtained loans through independent mortgage brokers participating in Chase's wholesale channel. It projects that in thousands of instances, an African-American borrower entering into the same type of Chase wholesale mortgage as a white borrower paid higher loan rates and larger fees than such white borrower. Similarly, it projects that in thousands of instances, a Hispanic borrower entering into the same type of Chase wholesale mortgage as a white borrower paid higher loan rates and larger fees than such white borrower.
As the January 24, 2017, Blog's opening paragraph presciently warned:
You might want to call it an existential challenge. The Financial Industry Regulatory Authority has to make up its mind. Will it treat its smaller member firms the same as its larger ones? Will the self-regulator perpetuate its seemingly disparate reaction to the transgressions of its financial superstore member firms versus those of individual men and women stockbrokers? With new Chief Executive Officer Robert Cook, FINRA has a chance to hit the re-set button. One size fits all regulation is a bust. It's time to restore the partnership between the regulator and the regulated. Perhaps the first step in fixing the broken machinery of self regulation begins with an enlightened assessment of the issues presented in today's BrokeAndBroker.com Blog.After I criticized what I viewed as the disparate, overly-favorable treatment afforded by FINRA to its large member firm JPM, I offered in part this observation:Disparate FINRA Regulation?FINRA carried the banner for non-FINRA-member-firm J.P. Morgan Chase Bank and its FINRA-member-firm subsidiary J.P. Morgan Institutional Investments when it investigated DeBow and fined him $10,000 and suspended him for 18 months. Recall that no act technically took place at any J.P. Morgan FINRA member firm because the checks were all written against the non-member bank's account. If you read the AWC, it says that he was discharged by FINRA member firm J.P. Morgan Institutional Investments for "VIOLATION OF PARENT COMPANY'S CODE OF CONDUCT." Note the reference to the non-FINRA member firm parent company's Code of Conduct.Given that FINRA seemed comfortable acting as a collection agency or keeper-of-the-flame when it pounced on DeBow, what then should FINRA do now that it is confronted with the DOJ settlement involving J.P. Morgan Chase Bank, an intertwined affiliate of at least a couple of J.P. Morgan FINRA member firms?For starters, FINRA should investigate the extent to which all those banking and affiliate entanglements may have involved customers of its member firms. Armed with that information and guided by its actions against DeBow, FINRA should consider fining any member firm and suspending its senior brokerage staff for looking the other way, facilitating any referrals of minority mortgage clients, and feeding the fires of that marketing machinery that may have contributed to racial discrimination. I mean, after all, there is a $53 million civil-rights-lawsuit settlement with DOJ by J.P. Morgan Chase Bank, N.A. involving 106,000 minority victims of improper mortgage practices.FINRA Board of GovernorsI just checked and noticed that the current list of FINRA's Board of Governors includes Stephen M. Cutler of JPMorgan Chase & Co. If it turns out that his firm or its affiliates engaged in discrimination, maybe FINRA should remove Mr. Cutler from its Board and impose an 18-month ban on future Board service by JPMorgan representatives.