FINRA is fining J.P. Morgan Securities $1.1 million for failing to report 89 internal investigations against its advisors and employees between 2012 and 2018.
The timeline covers the period of time when former JPMorgan financial advisor Johnny Burris began whistleblowing about product pushing and other alleged problems at the bank. The action follows years of
“It’s just staggering that there were 89 internal investigations that they failed to report during that period of time,” says Teresa Verges, a former assistant regional director in the SEC’s enforcement office in Miami, who now serves on a FINRA arbitration task force. Broker-dealers are required to file with FINRA a Form U5 — a Uniform Termination Notice for Securities Industry Registration — within 30 days of terminating a registered representative's employment or affiliation with a firm, and to file an amendment within 30 days of learning that anything previously disclosed on a Form U5 is inaccurate or incomplete.
Several experts, including Verges, questioned the size of the fine and the tone of the FINRA release: “$1.1 million is like a traffic ticket,” says Lisa Braganca, a former SEC branch chief for the agency’s enforcement division in Chicago, who now represents clients in FINRA arbitration. “It’s kind of like, ‘Oh, you know, JPMorgan forgot to fill out a form.’ This isn’t just a form. This is an integral, critical part of the compliance and enforcement system,” she says.
By waiting an average of two years to report these investigations, JPMorgan prevented not only FINRA, but other regulators, other brokerages and the public, from learning about advisors allegedly involved in wrongdoing. When it comes to FINRA, the clock has already run out on many of them — across the 89 cases, 30 of the advisors involved will not be investigated by FINRA because the cases are too old, FINRA said in a news release.
“This is incredibly relevant information for FINRA to say, ‘Oh, gee, you know what? This is old, they didn’t tell us till later, we can’t do anything,” Braganca says. “Not good enough.”
The regulator did not say how many other advisors may now be subject to investigation. As part of its decision, FINRA is also requiring the bank to certify within two months that it has taken appropriate corrective measures.
“Firms must live up to their responsibility as a gatekeeper and disclose allegations in a timely, accurate and complete manner,” Susan Schroeder, executive vice president of FINRA's Department of Enforcement, said in a statement. “This disclosure responsibility is essential.”
Representatives of the regulator did not immediately respond to questions. As part of the $1.1 million settlement, J.P.Morgan Securities neither admitted nor denied the charges. A JPMorgan spokeswoman provided the following statement, "We’re pleased to put this matter behind us. We’ve since made a number of improvements to our controls and procedures to comply with reporting requirements.”
Over the past several years, Financial Planning’s investigations have identified five of the many current or former JPMorgan managers who allegedly took part in a scheme against Burris that another regulator, the Occupational Safety and Health Administration, concluded was retaliatory. They include Philip Haigis, Andrew Held, Umbreen Kazmi, all of whom are still employed by the bank, as well as Laya Gavin, who is now a real estate broker in Arizona. In 2017, FINRA issued a private letter of sanction against Gavin for creating false evidence used against Burris in his wrongful termination FINRA arbitration. The letter was obtained by Financial Planning through state of Arizona open records laws. Based partially on the false evidence, Burris lost that fight.
It was not immediately clear if Gavin, or any of the other managers involved in Burris’ case, were among the financial professionals involved in the 89 cases.
The allegations in those cases involve “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,” FINRA said in its release, which describes JPMorgan’s internal investigations as stretching from January 2012 to April 2018.
During a similar time period, from 2011 to 2018, JPMorgan paid out a total of $43.41 billion in dozens of regulatory fines and settlements involving criminal behavior and fraud, according to Financial Planning’s investigation.
