The Securities and Exchange Commission charged that the Wall Street division of JP Morgan Chase allowed employees to use platforms to circumvent federal record-keeping laws.
The SEC said Friday that a large number of record-keeping failures have been admitted by JP Morgan Securities. The bank's employees used their personal phones and email accounts to conduct securities business from January to November 2020.
The SEC officials who spoke to reporters Thursday evening said that the bank's failure to preserve off-line conversations violated federal securities law and left them blind to exchanges between the bank and its clients.
Federal law requires financial firms to keep records of electronic messages between their employees and their clients.
In recent years, regulators in New York and London have increased their enforcement of record-keeping rules.
While phone conversations and messages on official company devices and software platforms are preserved, it is much harder for bank compliance departments to surveil communications on third-party apps. After two of the industry's biggest trading scandals of the past decade, that workaround picked up in popularity.
The traders at Morgan Stanley, JP Morgan, and other firms have been placed on leave or dismissed for violating the practice. The SEC order showed how pervasive it is.
Managers and senior personnel responsible for compliance used their personal devices to communicate sensitive business matters, the SEC said.
The SEC has launched probes at firms across the financial universe as the investigation at JP Morgan is ongoing. According to a report in June, JPMorgan ordered its traders, bankers and financial advisors to keep their work-related messages on their personal devices.
The current status of the examination at other banks was not offered by officials.
The SEC Chair Gary Gensler said in a press release that it was more important that the communications of the registrants were recorded and not conducted outside of official channels.
The foreign exchange scandal that took place in the summer of 2013 involved traders at several banks using private chat rooms with names including "The Cartel" to plot to fix currency rates.
Five of the world's largest banks agreed to pay more than $5 billion in penalties and plead guilty to resolve the investigation.
The SEC's important examinations and enforcement work are helped by books-and-records obligations. They build trust in our system.
SEC officials said the $125 million penalty is the largest recordkeeping fine to date, but it may be the bigger threat to the company. The SEC put the industry on notice by going after the world's biggest Wall Street firm.
The announcement caps a banner week for Gensler, who on Wednesday issued a raft of proposals aimed at securing money-market funds and limiting executives' ability to trade their own companies' equity.
The proposals and enforcement action show that the Biden appointees are rushing to draft and pass one of the most ambitious policy agendas in decades.
Many investors see him as the leader the SEC needs to develop expansive cryptocurrencies regulation, safeguards around special-purpose acquisition companies, and rules governing online brokerage marketing and securities trading.
The SEC Enforcement Director, Gurbir Grewal, has warned for months that tougher enforcement was on the way.
Restoring the public's trust in Wall Street will require robust enforcement of laws and rules concerning required disclosures, misuse of nonpublic information, violation of record-keeping obligations, and obfuscation of evidence from the SEC or other government agencies, he said in October.
In addition to his focus on Wall Street, Grewal is also working on ways the SEC can prevent malfeasance from happening in the first place.
In this case, Grewal has said he plans to be aggressive about requiring guilty firms to confess their misdeeds publicly.
When firms fail to comply with recordkeeping requirements, they directly undermine our ability to protect investors and preserve market integrity.
