At first, when Johnny Burris' superiors at JPMorgan Chase told him to put his elderly clients' assets into the bank's own investments, he was all-in.
Within a year, Burris became the No. 2 seller of JPMorgan products in Nevada and Arizona in 2011. He also received stellar performance reviews. But it didn't last for long. After further looking into the performance of the funds, Burris says he became dismayed at what he found and sharply cut back on using them. A year later, J.P. Morgan Securities fired him. Burris alleges he was axed for putting his clients' financial interests before the bank's — a charge the company denies.
The SEC on Friday said two JPMorgan wealth management subsidiaries agreed to pay regulators $307 million and admitted they failed to properly disclose to clients their preference for using in-house products. The wirehouse will pay $267 million in the SEC settlement and $40 million in a parallel Commodities Futures Trading Commission case.
The funds will be paid to the U.S. Treasury and not to investors, who suffered losses, the SEC's head of enforcement Andrew Ceresney said in a press conference.
"From our perspective there was significant harm to clients here because they were deprived of material information they needed" to make investments, Ceresney said.
A JPMorgan spokeswoman didn’t respond when asked if Burris' complaints were part of the SEC case against it and Burris had no comment when asked if he filed a whistleblower suit with the commission. Ceresney says the SEC does not publish information regarding the existence or the identities of any potential whistleblowers related to cases.
"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," said Darin Oduyoye, a JPMorgan spokesman. "The disclosure weaknesses cited in the settlements were not intentional and we regret them. We remain confident in our investment process and are proud of the way we manage money."
However, Burris, a 44-year-old adviser who has been in the industry for 25 years, believes the evidence indicates that the bank's program to steer clients into its own funds has been intentional from start to finish, including its decision to fire him.
His case has since broadened into a wider controversy. Based in part on recordings he made of conversations with his superiors, Burris has filed a whistleblower suit with the Labor Department's Occupational Safety and Health Administration.
News of Burris' experience comes at a timely moment as the Labor Department considers whether or not to require all of the country's brokers and financial advisers to act as fiduciaries to their clients. Burris alleges that the country's largest bank fired him precisely for being a fiduciary
A Financial Planning investigation has found that the company’s treatment of Burris raises important questions about whether JPMorgan does indeed permit its brokers to function as fiduciaries, given the bank's openly stated goal of preferring its own products to outside ones.
Indeed the nub of the controversy seems to be captured in JPMorgan's core mission. In the About Us section of its website, it outlines the six ways it serves customers: focus on clients' "best interests," never allow short-term profit to "get in the way of doing what's right," but also, "use our own products." Advisers like Burris claim the first two goals are fundamentally incompatible with the third.
During his two years at JPMorgan, Burris says he faced continual pressure to sell house products. On at least four occasions, beginning in June 2012, Burris complained about this pressure up his chain of command.
Using the bank's own products would nearly double his elderly clients' fees and deliver poor performance, especially at their time of life, Burris told his bosses.
"I would not breach my fiduciary obligation to the client," he says now.
Burris regarded the pressure as tantamount to fraud, given that JPMorgan tells clients on its website that their interests come first. Burris says he felt protected by federal law in the Sarbanes-Oxley Act, which forbids publicly traded companies from retaliating against employees who report alleged securities fraud.
And as the firm’s own orientation materials instructed him, "You are now considered to be a fiduciary for your client…. You must consider what is in the best interest of your client and not act in a manner contrary to your fiduciary interest (i.e., recommending a transaction or strategy based upon the amount of commissions or fees). "
JPMORGAN GOAL: 'USE OUR OWN PRODUCTS'
The firm failed to respond to Burris’ complaints as he'd hoped.
Instead of altering its behavior in response to his concerns, Burris says his employer continued pushing him to sell the house products.
Roughly five months after he started complaining, on Nov. 6, 2012, the bank fired him.
The reason was "misconduct."
"Mr. Burris was terminated because he violated important compliance rules," Patricia Wexler, a spokeswoman for JPMorgan, says. "He violated critical compliance rules in important ways and on numerous occasions."
However, the Financial Planning investigation casts doubt on the severity of the alleged violations.
For starters, the transgressions listed by J.P. Morgan Securities on Burris' BrokerCheck as reasons for his termination — all occurring after his complaints began — appear mild compared to more serious transgressions and larger settlements wirehouses sometimes pay in cases involving brokers still in good standing.
The bank put three complaints as explanation for his termination on his FINRA BrokerCheck record: a $635 loss he allegedly caused to one client and the fact that Burris allegedly sold products that he marked as "unsolicited" when both were in fact "solicited" in two cases.
By contrast, the public record of another broker, Michael Crane Lyons with J.P. Morgan Securities in Burris' region, caused the bank a loss of $21,437 after a client accused him of unauthorized trading in an account. Lyons still works with the bank.
Wexler says Burris committed other transgressions not mentioned on his public record, but declined to provide further details.
'I DIDN'T UNDERSTAND THE LETTER'
After firing Burris, the firm placed another three complaints on his record in April and May 2013, weeks after he was quoted in The New York Times about his concerns about product-pushing at the bank. Around the same time, Burris also filed a whistleblower lawsuit with OSHA.
Reached by phone, most of the clients behind the complaints on Burris' record say they were satisfied with Burris' service to them and were taken aback in discovering that the company lodged complaints under their names.
"I didn't really understand the letter," says retiree Carolyn Scott. A complaint attributed to her accuses Burris, her broker at the time, of failing to disclose high upfront charges and tax consequences associated with an IRA rollover he completed on her behalf.
Laya Gavin, a supervisor at the office where Burris worked, drafted up the letter in Scott's name, according to Wexler and Scott.
However, that's not what it sounded like during testimony in a FINRA arbitration case over Burris' termination. When asked if company employees routinely draft letters of complaints on behalf of clients, one of Burris' supervisors Umbreen Kazmi said, "Absolutely not," according to a transcript of the proceedings.
Later, Wexler explained that Gavin wrote up the complaint for Scott and other former Burris clients as "a courtesy." In her testimony, Kazmi sought to deny the implication made by Burris' lawyer during cross-examination that the complaints had been in any way fabricated, Wexler also said.
'I HAD NO PROBLEM WITH JOHNNY'
Scott told Financial Planning she feels betrayed that Gavin never explained what the letter was going to be used for and that she never sought to harm Burris.
"She said, 'Let me have you sign this letter and see if I can get any money for you'" as reimbursement for the losses, Scott says of Gavin, adding that she doesn't understand the technical language the complaint employs, even though she worked in a bank for more than 30 years herself. "So I stupidly signed. I think it was unethical because she didn't explain it to me. … I had no problem with Johnny."
Gavin did not return a call asking for comment. Scott has since moved her accounts back to Burris's RIA, Burris Wealth Management in Sun City West, Ariz.
Three other clients interviewed by Financial Planning similarly said they had no idea Gavin had created letters of complaints under their names.
One elderly client, along with his wife, signed an affidavit saying that he's been unable to read or write or his entire life.
"I would never have known how to draft a complaint letter, nor could I have drafted the letter in question," the affidavit states.
However, Wexler says, the clients' feelings about their complaints are irrelevant to the issue at stake.
When clients come in and use certain "trigger words" that signal to bank employees that transgressions have occurred, Wexler says, "Securities law is clear that certain complaints need to be documented."
FINRA says it is aware of Burris’ complaints and is looking into the matter.
OSHA has yet to produce a ruling on Burris's two-and-a-half-year-old whistleblower case.
And while Burris lost his wrongful termination claim in a confidential case before FINRA arbitrators, another authority — one not run by the same firms that it polices — found his argument persuasive.
'MERE ALLEGATIONS' AREN'T PROOF
Reviewing similar evidence about why the bank fired Burris, an administrative judge in Arizona in January 2013 ruled that Burris was entitled to unemployment insurance. During the proceeding, the judge heard sworn testimony from Burris and his two former managers, Umbreen Kazmi and Deborah H. Valenzuela. Kazmi and Valenzuela did not immediately respond to voicemails requesting comment.
In her ruling the judge wrote that the firm bypassed its own disciplinary procedures when it terminated Burris and failed to prove he had engaged in misconduct.
"The question arises as to whether [Burris’] action actually amounted to any disregard of the company's interest," the judge concluded. "It is important to keep in mind that mere allegations of misconduct are not sufficient to sustain such a charge."