JPMorgan Chase & Co. will pay $307 million settlement to settle allegations that it failed to disclose conflicts of interest within wealth management and private banking units. Clients at three JPMorgan asset management affiliates were pushed toward mutual funds that JPMorgan itself managed and toward hedge funds that paid kickbacks to JPMorgan affiliates, the settlement states. Advisers allegedly failed to inform clients that JPMorgan made higher profits by selling products managed by its subsidiaries.
The conflicts sometimes ended up directly costing clients, the SEC alleges. Clients in the Chase Strategic Portfolio, often ended up in mutual funds whose share classes were 15 basis points — or 0.15 percent — more expensive than they could have been, dragging on returns while earning JPMorgan higher fees, the SEC order states. JPMorgan did not disclose the existence of the cheaper options that were available to clients.
“Firms have an obligation to communicate all conflicts so a client can fairly judge the investment advice they are receiving,” said Andrew Ceresney, enforcement chief of the Securities and Exchange Commission (SEC), in a statement.
The bank was also sanctioned for failing to disclose its preference for investing clients in hedge funds that paid so-called retrocessions, which are kickbacks that money managers pay for inclusion on a private bank platform. All but one of the hedge funds currently available to clients of JPMorgan’s Private Bank platform paid those kickbacks, the CFTC said.
The wrongdoing was brought forth by a whistleblower who is entitled to receive up to 30% of the $307 million, $92.1 million, which would be one of the highest whistleblower awards of its kind.