J.P. Morgan Securities Pays $18 Million to SEC After Breaking Whistleblower Rules

A Wall Street giant paid an $18 million settlement to the Securities and Exchange Commission (SEC), closing a case that should serve as a bright red light to other financial firms that attempt to restrict whistleblowers from reporting misconduct to the SEC. J.P. Morgan Securities was cited for violating Rule 21F-17(a), which bars institutions from using anti-whistleblower conditions in settlement agreements with employees and customers. 

According to the government, J.P. Morgan included restrictive clauses in settlement agreements for three years. These clauses discouraged individuals from reporting potential wrongdoing to the SEC, effectively silencing potential whistleblowers. Employing this type of language not only undermines the core principles of transparency and accountability in the financial sector but also potentially allows illegal activities to go unchecked by regulators. 

While J.P. Morgan’s release does not stop parties to a settlement from responding to inquiries made by the SEC or other authorities, it does bar them from reaching out to report misconduct. Specifically, the release requires clients to “keep this Agreement confidential and not use or disclose…the allegations, facts, contentions, liability, damages, or other information relating to this Account.”

The expensive settlement indicates that the SEC is getting more serious about enforcing the whistleblower rule. Other enforcement actions in the past few years have involved similar language in settlement agreements, including cases involving settlements with employees. However, the firms in those matters paid a much smaller amount than J.P. Morgan’s $18 million sanction. 

Firms using settlement agreements that seem to prohibit or discourage the reporting of misconduct to the SEC should not hesitate to consider revisions. Gurbir S. Grewal, Director of the SEC’s Division of Enforcement sends a clear message in his statement that “[w]hether 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,”  

Companies such as J.P. Morgan should not be able to avoid accountability for their unlawful actions by intimidating victims or paying their way out of a difficult situation. If you believe that a settlement you were offered violates Rule 21F-17(a), Kardell Law Group can review the specific terms and advise on your legal options.