by T. GormanPosted on Posted in SECActions

The holiday season may be a time of good cheer. Wall Street banks may not agree, however, at least for this year. As the season began to unfold JPMorgan settled a Commission action centered on conflicts by admitting the facts in the Order and paying disgorgement and penalties. In the Matter of Morgan Stanley Investment Management Inc., Adm. Proc. File No. 3-17016 (December 22, 2015). A few days later Morgan Stanley was named in another settled SEC action. In the Matter of JPMorgan Chase Bank, N.A., Adm. Proc. File No. 3-17008 (December 18, 2015). That proceeding was based on parking violations (both of these actions will be discussed in the Friday post). Now JP Morgan has been named in a second suit, this one based on false advertising claims made to some of its wealthiest clients. In the Matter of J.P. Morgan, Adm. Proc. File No. 3-17036 (January 6, 2016).

JPM Securities is a wholly-owned subsidiary of JPMorgan Chase & Co. The firm is a registered broker dealer and investment adviser. It provides brokerage services to a business unit called J.P. Morgan Private Bank which is a marketing name for a segment that provides banking and investment services in the U.S. to high net worth and ultra-high net worth customers.

Over a period of four years beginning in 2009 JPM Securities used marketing materials where were false despite repeated warnings by personnel. Specifically, the materials stated that JPM Securities compensated registered representatives in Private Bank based solely on the performance of investments in customer accounts. In fact they were paid a salary and a bonus which depended on a number of factors that did not include client account performance. The misrepresentation was made on:

Prospecting card: This was a wallet size card that contained key points about JPM Private Bank. The card was reviewed by internal compliance and received approval from the marketing department.

Private Bank webpage: In June 2010 Private Bank made certain revisions to its website. Those included adding the misrepresentation regarding broker compensation. The page was reviewed by the marketing department and approved by compliance.

Tampa webpage: In February 2011 Private Bank’s branch office webpage was revised and a separate one created for Tampa. It included the misrepresentation regarding broker compensation.

Pitch books: In March 2009 the marketing manager worked on a pitch book for Private Bank. The book included the compensation misrepresentation. It was disseminated for internal review prior to release.

Marketing letter: In November an adviser at Private Bank obtained approval for a marketing letter that was sent to his contacts. It contained the broker compensation misrepresentation.

Over a three year period beginning in 2011 four JPM Securities employees noted that the statement about broker compensation was inaccurate. No changes were made. The Order alleges willful violations of Securities Act Section 17(a)(2).

To resolve the proceeding Respondent undertook remedial action considered by the Commission. The firm also consented to the entry of a cease and desist order based on the Section cited in the Order and to a censure. In addition, JPM Securities will pay a penalty of $4 million.

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by T. GormanPosted on Posted in SECActions

The SEC began the year by filing a settled insider trading case. The action is largely unremarkable as insider trading cases go, although some might question if all the key elements of a claim are pleaded. The facts are simple and straight forward. What may be remarkable is the forum in the context of other recent insider trading cases. In the Matter of Vivian S. Shields, Adm. Proc. File No. 3-17034 (January 4, 2016).

The case centers on the tender offer for the shares of J. Alexander’s Corporation by Fidelity National Financial, Inc., announced on June 25, 2012. J. Alexander’s is a restaurant chain based in Nashville, Tennessee. Fidelity National is an insurance, mortgage services and diversified services firm which also holds stakes in businesses in other industries, including the restaurant industry. The Order does not disclose the employment or trading history of Ms. Shields.

The deal which lead to the tender offer began on April 17, 2012 when Fidelity proposed a tender offer for 50.1% of J. Alexander’s common stock. The two companies entered into an exclusivity agreement the next day.

Meetings between executives of the two firms were subsequently held between April 26, 2012 and May 2, 2012. Specifically, on April 26 the CEO and COB of J. Alexander’s met with the Executive Chairman and Executive Vice President of Fidelity to discuss the proposed tender offer. Additional meetings were held involving senior managers, investment bankers and counsel for J. Alexander’s with counsel and investment bankers for Fidelity regarding the structure of the proposed deal.

On May 18, 2012 Ms. Shields “indirectly acquired material, nonpublic information relating to what was ultimately a tender offer . . .” from a J. Alexander’s employee, according to the Order. On June 1 and 6 Ms. Shields purchased a total of 12,000 shares of J. Alexander’s stock while in possession of that information. There is no allegation what Ms. Shields knew about the information she somehow acquired or any claim that a substantial step toward a tender offer had been taken.

Ms. Shields sold 1,000 shares of the stock in mid-July and tendered the balance in September. In total Ms. Shields had profits of $71,401.12. The Order alleges violations of Exchange Act Section 14(e) and Rule 14e-3.

To resolve the action Ms. Shields consented to the entry of a cease and desist order based on the Section and Rule cited in the Order. She also agreed to disgorge her trading profits, pay prejudgment interest and a penalty equal to the amount of the trading profits.

This is the third insider trading case filed by the Commission as an administrative proceeding in recent weeks. The Shear action, filed December 18, 2015, is a settled proceeding where a corporate insider traded on inside information. The Carpenter proceeding, filed just before Christmas on December 22, 2015, is a tipping case in which the Order does not specifically allege a Newman benefit. While it is may be premature to call three cases in a short time period, a trend it is well worth watching to see if one develops. This is particularly true in view of the paucity of allegations contained in two of the three actions.

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