JPMorgan Said to Win Relief in SEC Case on Sale of Its Own Funds

  • Bank to get consent to continue raising money for hedge funds
  • SEC, CFTC may announce settlements with bank as soon as Friday

JPMorgan Chase & Co. is close to settling cases that threatened to bar the bank from raising money for hedge funds and technology startups, ending U.S. regulators’ investigations into whether the bank improperly sold some clients in-house investments that carried high fees, according to a person familiar with the negotiations.

As part of the accords, the bank will secure what’s known as a waiver from the Securities and Exchange Commission that allows it to continue the lucrative practice of fundraising for private companies, said the person who asked not to be identified because the discussions are private. JPMorgan will be required to pay more than $150 million under the terms of the settlements and could have its waiver on soliciting funds revoked if the bank faces a future misconduct case, the person said.

The SEC and Commodity Futures Trading Commission have been investigating whether JPMorgan properly disclosed to pension funds and wealthy clients that it was putting them into more expensive in-house investments at the expense of customer returns. Settlements with the regulators could be announced as soon as Friday, the person said.

The investigations were expected to be resolved several months ago. A sticking point that held things up was the potential SEC ban on the bank’s ability to raise money from its customers to invest in hedge funds and private tech companies.

Darin Oduyoye, a spokesman for New York-based JPMorgan, declined to comment.

Independent Consultant

The waiver that the SEC plans to grant JPMorgan requires that the bank hire an independent consultant to review its policies and procedures for following rules for private fundraising, the person said. During the period that the waiver is in force, a senior JPMorgan executive would have to certify the bank’s compliance with its terms.

Separately, JPMorgan will lose a privilege that allows big companies to raise capital for themselves more quickly by skipping SEC review of the deal, the person said. JPMorgan’s lawyers said in May that losing that benefit could raise its cost of funding because the bank wouldn’t be able to respond as quickly to changes in interest rates. The value of debt and equity JPMorgan issued from 2013 to 2015 -- during a period when it enjoyed the special status -- was about $62 billion, according to the May letter written by the bank’s lawyers at Wilmer Cutler Pickering Hale and Dorr.

Banks need waivers to avoid getting hit with additional penalties that automatically kick in when companies resolve enforcement matters. Obtaining them was once a routine job handled by SEC staff. In the past year they have become a flashpoint, with Democratic Commissioners Luis Aguilar and Kara Stein sometimes voting against granting waivers or arguing for restrictions on the relief. SEC Chair Mary Jo White has typically voted to approve waivers and said in March the SEC shouldn’t use the process as an enforcement tool.

The JPMorgan settlement with the SEC has been slowed by negotiations among the agency’s commissioners and the fact that White was recused from the case, according to two people familiar with the matter. In June, White didn’t vote on a separate waiver granted to JPMorgan after the bank pleaded guilty to conspiring to manipulate benchmark foreign-exchange rates, according to an order posted on the SEC’s website.

Gina Talamona, a spokeswoman for White, wouldn’t discuss why the SEC chair hasn’t voted on some cases involving JPMorgan. CFTC spokesman Steven Adamske declined to comment on the agency’s investigation.

The settlements with the SEC and CFTC will cap about two years of investigations during which the government deposed asset-management executives and issued subpoenas for internal documents. The probes targeted a money management unit of JPMorgan that grew rapidly after the 2008 financial crisis, as new regulations crimped areas including hedge-fund and proprietary-trading operations that have traditionally produced strong earnings for Wall Street banks.

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