Morgan Fined $125 Million for Evading Regulators

( On Friday, the Securities and Exchange Commission (SEC) announced that it has fined JP Morgan Securities $125 million for evading reporting requirements by using WhatsApp and other encrypted messaging services.

Federal law requires financial firms to keep meticulous records of all electronic messages between brokers and clients so regulators can ensure firms aren’t trying to get around anti-fraud or antitrust laws.

In its press release announcing the settlement, the SEC accused JP Morgan Securities of “widespread and longstanding failures” from January 2018 to November 2020. Employees of the firm, including supervisors and managers, were using WhatsApp, private email accounts, and personal phones to discuss investments and conduct business that should have been logged and reported under the Securities Exchange Act of 1934.

This settlement is part of an ongoing battle between regulators, banks, and employees over the use of personal devices. Policing the use of unofficial channels became more of an issue during the COVID pandemic when most traders were working remotely from home. Regulators in New York and London increased enforcement of record-keeping rules recently as traders began migrating to encrypted messaging platforms like WhatsApp, Signal, and Telegram.

In its statement on the settlement, the SEC said by using these other methods of communication, JP Morgan Securities deprived SEC staff of “sources of information for extended periods of time and in some instances permanently.”

In addition to the fine, as part of the settlement, JPMorgan Chase also agreed to admit wrongdoing and to undergo a comprehensive review of its policies.

Securities and Exchange Commission Chairman Gary Gensler reminded companies that with changes in technology, it is all the more important that firms ensure that their communications are being properly recorded and not being conducted outside of official channels as a way to avoid oversight.

As a result of the findings in the investigation into JP Morgan Securities, the SEC also began investigating record-keeping transactions at other financial firms. According to the SEC’s deputy director of enforcement, Sanjay Wadhwa, the size of the settlement in the case reflects “the seriousness of these violations.” Wadhwa urged other financial firms to “share the mission of investor protection” rather than obstruct it through incomplete recordkeeping.