JPMorgan Admits to Widespread Record-Keeping Failures and Agrees to Pay $125 Million Penalty to Resolve SEC Charges / Firm also agrees to implement significant improvements to its compliance controls (SEC Release)CFTC Orders JPMorgan to Pay $75 Million for Widespread Use by Employees of Unapproved Communication Methods and Related Recordkeeping and Supervision Failures / JPMorgan Admits Employees Used Texts and WhatsApp on Personal Devices to Conduct Business (CFTC Release)
JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC, and J.P. Morgan Securities plc (collectively, "JPMorgan") agreed to the entry of a CFTC Order[JPMS] admitted that from at least January 2018 through November 2020, its employees often communicated about securities business matters on their personal devices, using text messages, WhatsApp, and personal email accounts. None of these records were preserved by the firm as required by the federal securities laws. JPMS further admitted that these failures were firm-wide and that practices were not hidden within the firm. Indeed, supervisors, including managing directors and other senior supervisors - the very people responsible for implementing and ensuring compliance with JPMS's policies and procedures - used their personal devices to communicate about the firm's securities business.JPMS received both subpoenas for documents and voluntary requests from SEC staff in numerous investigations during the time period that the firm failed to maintain required records. In responding to these subpoenas and requests, JPMS frequently did not search for relevant records contained on the personal devices of its employees. 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.
The order notes that during the course of a CFTC investigation into certain of JPMorgan's trading, CFTC staff issued subpoenas to JPMorgan for certain communications. The Division of Enforcement learned, based on communications received from a third party, that JPMorgan traders had been using personal text messages and WhatsApp to communicate. Moreover, certain of those communications were responsive to the CFTC's subpoenas. After CFTC staff brought the use of unapproved communication methods by certain of JPMorgan's traders to JPMorgan's attention, JPMorgan notified CFTC staff that the firm was aware of widespread and longstanding use by JPMorgan employees of unapproved methods to engage in business-related communications.As a result of JPMorgan's failure to ensure that employees-including supervisors and senior-level employees-complied with the firm's communications policies and procedures, JPMorgan failed to maintain thousands of business-related communications in connection with its commodities and swaps businesses, and thus failed diligently to supervise its businesses as CFTC registrants, in violation of CFTC recordkeeping and supervision provisions.
As a result of JPMorgan's failure to ensure that employees-including supervisors and senior-level employees-complied with the firm's communications policies and procedures, JPMorgan failed to maintain thousands of business-related communications in connection with its commodities and swaps businesses, and thus failed diligently to supervise its businesses as Commission registrants. These supervision failures resulted in the widespread use of nonapproved methods of communication by many JPMorgan employees in violation of the firm's policies and procedures, as well as a widespread failure to maintain certain records required to be maintained pursuant to Commission recordkeeping requirements.An analysis, for example, of the three traders whose communications that were the subject of Commission subpoenas in the investigation noted above illustrates the breadth of JPMorgan's supervision and recordkeeping failures. An analysis of just those three custodians reveals the frequent use of non-approved methods to communicate with brokers and market participants. Further, those three traders' communications revealed that dozens more JPMorgan employees (including numerous supervisors, managing directors, and executive directors) conducted firm business on unapproved channels (including in hundreds of text and WhatsApp messages). Certain of these communications constituted records that were required to be kept pursuant to Commission recordkeeping requirements, and none of the communications were preserved and maintained by JPMorgan.JPMorgan's recordkeeping and supervision failures were firm-wide and involved employees at all levels of authority. Moreover, employees' use of unapproved communication methods was not hidden within the firm. To the contrary, certain supervisors-the very people responsible for supervising employees to prevent this misconduct-routinely communicated using unapproved channels on their personal devices. In fact, managing directors and senior supervisors responsible for implementing JPMorgan's policies and procedures, and for overseeing employees' compliance with those policies and procedures, themselves failed to comply with firm policies by communicating using non-firm approved methods on their personal devices about the firm's Commission-regulated businesses.
5. From at least January 2018 through at least November 2020, JPMorgan employees often communicated about securities business matters on their personal devices, using text messaging applications (including WhatsApp) and personal email accounts. None of these records was preserved by the firm. The failure was firm-wide, and involved employees at all levels of authority.6. Moreover, this widespread practice was not hidden within the firm. To the contrary, supervisors - i.e., the very people responsible for supervising employees to prevent this misconduct - routinely communicated using their personal devices. In fact, dozens of managing directors across the firm and senior supervisors responsible for implementing JPMorgan's policies and procedures, and for overseeing employees' compliance with those policies and procedures, themselves failed to comply with firm policies by communicating using non-firm approved methods on their personal devices about the firm's securities business.7. JPMorgan received and responded to Commission subpoenas for documents and records requests in numerous Commission investigations during the time period that it failed to maintain required securities records relating to the business. In responding to these subpoenas and requests, JPMorgan frequently did not search for records contained on the personal devices of JPMorgan employees relevant to those inquiries. JPMorgan's recordkeeping failures impacted the Commission's ability to carry out its regulatory functions and investigate potential violations of the federal securities laws across these investigations; the Commission was often 3 deprived of timely access to evidence and potential sources of information for extended periods of time and, in some instances, permanently.8. Commission staff brought the failure to produce text messages in an ongoing matter to JPMorgan's attention, and JPMorgan identified other recordkeeping failures that it subsequently reported to the staff. JPMorgan now has engaged in a review of certain recordkeeping failures and begun a program of remediation. As set forth in the Undertakings below, JPMorgan will retain a compliance consultant to review and assess the firm's remedial steps relating to JPMorgan's recordkeeping practices, policies and procedures, related supervisory practices and employment actions.
Plaintiff Johnny Burris ("Plaintiff") worked as a financial advisor for J.P. Morgan Chase & Co. and J.P. Morgan Securities, LLC (together, "Defendants") until November 2012, when he was terminated. In this action, which was filed in September 2018 (following an array of related proceedings between the parties in other forums), Plaintiff contends that he was fired for complaining about Defendants' efforts to push investors into risky, "bank managed" financial products and then improperly blacklisted from the financial industry, in violation of the whistleblower retaliation provisions of the Sarbanes Oxley Act of 2002 and the Dodd-Frank Act of 2010.The current issues before the Court, however, have nothing to do with whistleblower retaliation. Instead, they arise from Plaintiffs' systematic efforts to destroy electronically stored information ("ESI") from an array of phones, laptops, email accounts, and external storage devices. Plaintiff's evidence-destruction efforts took a variety of forms, including the repeated use of software programs called "BleachBit" and "iShredder," and spanned a period of years, beginning before (but in anticipation of) this litigation and accelerating as the litigation unfolded. Eventually, a court-appointed forensic expert was tasked with investigating the scope of Plaintiff's efforts to destroy ESI, but the day before Plaintiff produced certain devices to the expert, he used wiping software on them, too. Based on this and other conduct, the expert concluded, "to a reasonable degree of scientific certainty, that [Plaintiff] caused Potentially Relevant ESI to be irrevocably lost from his Electronic Media." (Doc. 73-1 at 3.)Following the issuance of the expert's report, Defendants filed a motion for terminating sanctions. (Docs. 78 [sealed], 84 [unsealed].) That motion, as well as Plaintiff's motion for leave to belatedly submit certain exhibits in opposition to the sanctions motion (Doc. 92), are now fully briefed and ripe for resolution. For the reasons that follow, Defendants' motion is granted, Plaintiff's motion is denied, and this action is terminated.
Plaintiff does not propose any sanctions in lieu of dismissal, instead arguing that "there is no basis to impose any sanction whatsoever" (Doc. 89 at 1), but the Court would decline to impose lesser sanctions even if Plaintiff had proposed them. An adverse jury instruction or presumption that covers all of the destroyed evidence would have to be so broad that it would, itself, essentially terminate the case. Additionally, the sheer scope of Plaintiff's dishonesty and spoliation efforts-which the Court explicitly finds amounted to bad faith-makes this the rare case where it is impossible to have confidence that Defendants will ever have access to the true facts. Thus, the Court finds that although it did not impose alternative sanctions before dismissal, such sanctions are "not necessary" in this case. Valley Engineers, 158 F.3d at 1057.Of course, dismissal will be highly prejudicial to Plaintiff. But Plaintiff already had the opportunity to litigate several of his termination-related claims on the merits, via a two-week FINRA arbitration. This somewhat reduces the prejudice of dismissal. At any rate, because Plaintiff has engaged in such extensive misconduct and deception, without any obvious contrition or awareness of the wrongfulness of his conduct, there is a serious risk that further proceedings will continue to be plagued by a "pattern of deception and discovery abuse [which makes] it impossible for the district court to conduct a trial with any reasonable assurance that the truth would be available." Id. at 1058.
How nice, how goddamn wonderful it is that JPM gets to walk away from Burris' lawsuit over his purported destruction of information but when the firm fails to preserve similar records, it's afforded the magnanimous opportunity to pay a fine (out of the pockets of its shareholders!) and endure thee unspeakable torture of, omigod, hiring an outside independent consultant. Talk about no consequences on Wall Street for the big and powerful. As to the underlying issues in Burris' ongoing battle with JPM and the industry's regulators, read:
Wall Street Whistleblower Johnny Burris Speaks Truth To Power (BrokeAndBroker.com Blog / June 30, 2017) http://www.brokeandbroker.com/3516/burris-whistleblower/
Historic Federal Reserve Restrictions On Wells Fargo (BrokeAndBroker.com Blog / February 5, 2018) http://www.brokeandbroker.com/3808/federal-reserve-wells-fargo/
This is what effective regulation looks like!!!