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SEC Goes After JP Morgan for Violating Whistleblower Protection Rule

Posted  January 18, 2024

Add JP Morgan Securities to the ever-expanding list of companies the Securities and Exchange Commission (SEC) has gone after for violating the agency’s Whistleblower Protection Rule — SEC Rule 21F-17(a).  This rule broadly prohibits companies from taking any action to impede or discourage whistleblowers from reporting suspected securities violations to the SEC.  Yesterday (January 16), the SEC announced the JP Morgan unit will pay $18 million to settle charges it violated the rule by “impeding hundreds of advisory clients and brokerage customers from reporting potential securities law violations to the SEC.”

It is just the latest in a string of similar SEC enforcement actions over the past year, highlighting that the agency has made it a top priority to clear the path for whistleblowers.  This past September alone, the SEC brought three such actions.  One was against clean energy company Monolith Resources for forcing departing employees to waive their right to any whistleblower rewards for reporting fraud to the government.  The other two (against investment adviser D. E. Shaw & Co. and commercial real estate firm CBRE, Inc.) were for requiring departing employees to sign releases affirming they had not filed any complaints with the government.

Where the SEC claims JP Morgan strayed from the Whistleblower Protection Rule is with respect to its retail clients that had been issued a credit or settlement from the firm.  According to the SEC, JP Morgan required them to keep the details of the settlement confidential and barred them from voluntarily contacting the SEC (though they were allowed to respond to SEC inquiries).

This latest action just reinforces how broadly the SEC interprets its Whistleblower Protection Rule and how aggressive the agency has become in enforcing it.  It is a point SEC Enforcement Director Gurbir Grewal made loud and clear in the SEC’s announcement of this latest settlement:

Whether it’s in your employment contracts, settlement agreements or elsewhere, you simply cannot include provisions that prevent individuals from contacting the SEC with evidence of wrongdoing.  But that’s exactly what we allege J.P. Morgan did here.  For several years, it forced certain clients into the untenable position of choosing between receiving settlements or credits from the firm and reporting potential securities law violations to the SEC.  This either-or proposition not only undermined critical investor protections and placed investors at risk, but was also illegal.

Corey Schuster, Co-Chief of the Enforcement Division’s Asset Management Unit, echoed this strong SEC sentiment: “Investors, whether retail or otherwise, must be free to report complaints to the SEC without any interference,” and in drafting confidentiality agreements, companies “need to ensure that they do not include provisions that impede potential whistleblowers.”

All this yet again showing how determined the SEC is in protecting the absolute right of whistleblowers to report to the SEC.  And to safeguard any reward whistleblowers might be entitled to for providing information that leads to a successful enforcement action (potentially as much as 30% of any government recovery).  For some whistleblowers, this has amounted to awards of tens of millions, even hundreds of millions of dollars.  See our Top-10 list of whistleblower awards for 2023.

So if you think you may have information relating to potential securities violations, rest assured, the SEC wants to hear from you and will do what it can to make sure there is nothing that stands in your way.  If you would like more information on what it means to be an SEC whistleblower, please don’t hesitate to contact us so we can connect you with an experienced member of our whistleblower lawyer team for a free and confidential consult.

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Tagged in: Securities Fraud, Whistleblower Protection Laws,