JPMorgan Chase will pay more than $300 million to settle US allegations that it didn't disclose its preference for putting clients' money into the bank's own investment products.
America's largest bank by assets failed to disclose numerous conflicts of interest tied to certain wealth management clients, the Securities and Exchange Commission said Friday. That included placing investors in more expensive proprietary mutual funds, and showing a preference for third-party-managed hedge funds that made payments to a JPMorgan affiliate, it said.
The New York-based bank admitted that two of its units that manage money -- its securities subsidiary and its nationally chartered bank -- failed to disclose such conflicts to clients from 2008 to 2013, according to the SEC. JPMorgan said the omissions were unintentional and that it has since enhanced its disclosures.
The SEC announced $267 million in penalties and disgorgements against JPMorgan. The bank agreed to pay an additional $40 million as part of a parallel action by the Commodity Futures Trading Commission.
At one point in early 2011, JPMorgan invested 47 per cent of mutual fund assets and 35 per cent of hedge fund assets in products and accounts that had ties to it, according to the SEC order.
Firms have an obligation to communicate all conflicts so a client can fairly judge the investment advice they are receiving.
"These J.P. Morgan subsidiaries failed to disclose that they preferred to invest client money in firm-managed mutual funds and hedge funds, and clients were denied all the facts to determine why investment decisions were being made by their investment advisers."
The disclosure weaknesses cited in the settlements "were not intentional and we regret them," said Darin Oduyoye, a JPMorgan spokesman. "We have always strived for full transparency in client communications, and in the last two years have further enhanced our disclosures in support of that goal," Oduyoye said.
JPMorgan agreed to pay a $40 million civil penalty to the CFTC, which also cited $60 million in disgorgement that was part of the SEC settlement.
JPMorgan's settlement with the SEC included a penalty component of $127 million. That surpassed the agency's previous record of $100 million, levied on Alliance Capital Management 11 years ago, according to an SEC spokeswoman.