- Regulators said wealthy clients weren’t told about conflicts
- $950,000 agreement follows record deal with federal agencies
JPMorgan Chase & Co. has reached a settlement with Indiana regulators related to its asset management business, and now other states are expressing interest in how Indiana built its case.
JPMorgan agreed on July 28 to pay $950,000 to settle claims by the Indiana secretary of state that the bank failed to disclose conflicts of interest to wealthy clients. Andrew Lang, a spokesman for Secretary of State Connie Lawson, said the settlement prompted officials from other states to ask how Indiana had pursued its claim. He wouldn’t identify the states.
“Investors have the right to know all the facts and to receive complete information when deciding to invest,” Lawson said in a written statement last week. “This right extends to a seasoned accredited investor or a novice investor.”
The Indiana settlement involves what the state described as JPMorgan’s failure between 2008 and 2014 to tell clients that its investment model was designed to guide them into JPMorgan’s own investment products. The state said that as a result of the disclosure lapses, the bank was operating “outside the standards of honesty and ethics generally accepted in the securities industry.”
Last December, JPMorgan, the largest U.S. bank by assets, agreed to a $300 million settlement over similar accusations by the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission. It was the largest such settlement related to an asset management business. In the federal action, JPMorgan admitted to disclosure failures but said they were unintentional. It made no such admission in the Indiana case.
“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 Michael Fusco, a spokesman for New York-based JPMorgan. “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.”
The Indiana agreement also follows a settlement last August of a suit filed by Christ Church Cathedral of Indianapolis over the bank’s management of a multimillion-dollar charitable trust. The church’s dispute accused JPMorgan of causing $13 million in losses by putting its own interests ahead of its client’s in selecting hedge funds, private equity and other investments. JPMorgan settled the case for undisclosed terms.
Like other banks, JPMorgan has been bolstering its asset-management business as regulations squeeze other operations. It has also been expanding its use of in-house investment products, including mutual funds. Over the past decade, Morgan Stanley, Citigroup Inc. and Bank of America Corp. have shed their mutual fund businesses after being fined for allowing conflicts of interest to result in sales abuses.