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UNITED STATES OF AMERICA 

 Before the 

 SECURITIES AND EXCHANGE COMMISSION 

 

SECURITIES ACT OF 1933 

Release No. 11324 / October 31, 2024 

 

SECURITIES EXCHANGE ACT OF 1934 

Release No. 101495 / October 31, 2024 

 

INVESTMENT ADVISERS ACT OF 1940 

Release No. 6760 / October 31, 2024 

 

ADMINISTRATIVE PROCEEDING 

File No. 3-22280 

 

In the Matter of 

J.P. Morgan Securities LLC, 

Respondent. 

ORDER INSTITUTING ADMINISTRATIVE 

AND CEASE-AND-DESIST PROCEEDINGS 

PURSUANT TO SECTION 8A OF THE 

SECURITIES ACT OF 1933, SECTIONS 

15(b)(4) AND 21C OF THE SECURITIES 

EXCHANGE ACT OF 1934, AND SECTION 

203(e) OF THE INVESTMENT ADVISERS 

ACT OF 1940, MAKING FINDINGS, AND 

IMPOSING REMEDIAL SANCTIONS AND 

A CEASE-AND-DESIST ORDER 

I. 

 The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 

public interest that administrative and cease-and-desist proceedings be, and hereby are, instituted 

pursuant to Section 8A of the Securities Act of 1933 (“Securities Act”), Sections 15(b)(4) and 21C 

of the Securities Exchange Act of 1934 (“Exchange Act”), and Section 203(e) of the Investment 

Advisers Act of 1940 (“Advisers Act”) against J.P. Morgan Securities LLC (“Respondent” or “JP 

Morgan Securities”).   

II. 

 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 

of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 

purpose of these proceedings and any other proceedings brought by or on behalf of the 



 
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Commission, or to which the Commission is a party, and without admitting or denying the findings 

herein, except as to the Commission’s jurisdiction over it and the subject matter of these 

proceedings, which are admitted, Respondent consents to the entry of this Order Instituting 

Administrative and Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 

1933, Sections 15(b)(4) and 21C of the Securities Exchange Act of 1934, and Section 203(e) of the 

Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions and a 

Cease-and-Desist order (“Order”), as set forth below. 

III. 

 On the basis of this Order and Respondent’s Offer, the Commission1 finds that:   

Summary 

1. These proceedings arise from misleading disclosures that JP Morgan Securities used 

with brokerage customers investing in its “Conduit” products, which pooled customer money and 

invested in private equity or hedge funds that customers might not be able to access directly.  On 

occasion, the third-party fund in which a Conduit was invested would distribute shares of 

companies that had recently undertaken an initial public offering (“IPO”) or another liquidity event 

(referenced herein as “Shares”) to the fund’s limited partners, including the Conduit.  Each Conduit 

appointed J.P. Morgan Private Investments Inc. (“JP Morgan PI”) as administrator to the Conduit.  

JP Morgan PI, in turn, appointed the Private Equity Distribution Management (“Distribution 

Management”) team, a part of J.P. Morgan Investment Management Inc. (“JP Morgan IM”), to sell 

the Shares.  J.P. Morgan Private Bank (“Private Bank”) then distributed the cash from the sales to 

Conduit investors via their brokerage accounts.   

2. In the offering documents for the Conduits, customers were told, among other 

things, that such sales “may not immediately follow the distribution” but would occur “as promptly 

as practicable under reasonable commercial terms.”  Contrary to these disclosures, however, 

Distribution Management actively managed the Shares, exercising complete discretion as to when 

to sell and the number of shares to be sold, and at times holding the Shares for several months 

before selling them.  Until June 2022, JP Morgan Securities did not disclose that Distribution 

Management would be exercising complete investment discretion over these sales and that, as a 

result, certain Conduit investors would be subject to market risk due to the timing of these sales.   

3. Between January 2019 and June 2022 (the “Relevant Period”), in part in response to 

challenging market conditions, Distribution Management held portions of the Shares that certain 

Conduits received for increasingly longer periods before selling them in their entirety, with holding 

periods for certain distributions extending for several months.  Because the share price of many of 

the companies declined after their IPOs, the value of certain Shares sold by Distribution 

Management declined significantly from the price at which Distribution Management initially 

                                                 
1  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not 

binding on any other person or entity in this or any other proceeding. 



 
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received them.  In connection with this resolution, JP Morgan Securities will pay 1,588 investor 

accounts $100,000,000. 

Respondent 

4. JP Morgan Securities is a Delaware limited liability company with its principal 

place of business in New York, New York.  It has been dually registered with the Commission as a 

broker-dealer and investment adviser since December 13, 1985, and April 3, 1965, respectively.  In 

its Form ADV dated March 28, 2024, JP Morgan Securities reports that it has approximately $249.7 

billion in regulatory assets under management.  JP Morgan Securities is a wholly owned subsidiary 

of JPMorgan Chase & Co. (“JP Morgan”), a global financial services firm incorporated in Delaware 

and headquartered in New York, New York.  JP Morgan Securities offered interests in and served as 

the placement agent for the Conduit products, which it sold to customers of J.P. Morgan Private 

Bank (“Private Bank”) and J.P. Morgan Advisors (“JP Morgan Advisors”), two of JP Morgan’s 

business segments.   

Other Relevant Entities 

5. JP Morgan PI is a Delaware corporation and wholly owned subsidiary of JP 

Morgan.  The Board of each Conduit delegated to JP Morgan PI the rights, powers, and duties to 

function as the Conduit’s administrator.  JP Morgan PI has been registered with the Commission as 

an investment adviser since May 15, 1992. 

 

6. JP Morgan IM, an affiliate of JP Morgan PI, is an investment adviser that has been 

registered with the Commission since April 4, 1984.  Within JP Morgan IM, Distribution 

Management provides distribution management services, typically on behalf of advisory clients.  

JP Morgan PI appointed Distribution Management to manage the sales of the Shares distributed to 

the Conduits.  

JP Morgan’s Conduit Program 

7. Beginning in the early 2000s, JP Morgan Securities began offering Private Bank 

and JP Morgan Advisors brokerage customers the opportunity to invest indirectly in third-party 

funds advised by private equity or hedge fund managers via the Conduit program.  The Conduits, 

themselves private funds in which brokerage customers invested, provided access to those third-

party funds to customers who might not otherwise be able to invest directly, including because of 

possible minimum investment requirements.  By committing at least $250,000, Private Bank or JP 

Morgan Advisors customers could invest in a Conduit, either through a Delaware limited liability 

company (for onshore customers) or Cayman Island exempted limited partnership (for offshore 

customers).  These brokerage customer funds were pooled and, in turn, used by the Conduit to 

purchase limited partnership interests in a third-party private equity or hedge fund.  Distributions to 

the Conduit from the third-party fund were then made to Conduit investors pro rata based on their 

percentage ownership interest in the Conduit.   

8. During the Relevant Period, JP Morgan Securities raised more than $6.5 billion 

from Private Bank and JP Morgan Advisors investors in the Conduits.  As disclosed, JP Morgan 



 
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Securities charged these investors a percentage of their commitment amounts as an origination fee, 

and earned fees from the underlying third-party funds for placing and administering those 

customers’ investments into those funds.    

9. Potential Conduit investors were offered Conduit limited liability company or 

limited partner interests through an offering memorandum or private placement memorandum 

(“Offering Documents”) and became members of the Conduit via either a limited liability 

company agreement, if an onshore customer, or a limited partnership agreement (“LPA”), if an 

offshore customer (both agreements are collectively referenced herein as the “Offering 

Agreements”).   

10. As set forth in the Offering Agreements, the “sole purpose” of the Conduit is to 

invest “limited partner interests” in an underlying third-party fund or any alternative investment 

vehicles established under the Offering Agreements and the Conduit is granted the “power and 

authority” to effectuate that purpose.   

11. Each Conduit is managed by a board of managers (“Board”).  The Board has 

“complete discretion to manage and control the business and affairs of the [Conduit], to make all 

decisions affecting the business and affairs of the [Conduit] [,] and to take all such actions as it 

deems necessary or appropriate to accomplish the purposes of the [Conduit] . . . .”  

12. The Offering Documents authorized the Board to delegate to an administrator the 

administrative and ministerial tasks necessary to effect the purpose of the Conduit—that is, to 

invest in the third-party fund.  In each instance, the Board appointed JP Morgan PI as the 

administrator.   

Distributions In-Kind and Related Disclosures 

13. Many of the third-party funds in which the Conduits invested purchased shares in 

early stage, private companies that became publicly traded during the life of the fund.  Upon 

becoming publicly traded, shares of these newly public securities were, at times, distributed to the 

fund’s limited partners (including the Conduits), known as in-kind distributions, rather than sold 

and distributed in cash, known as cash distributions.   

14. The Offering Documents and Offering Agreements contemplated and described 

what would then happen upon Share distribution to the Conduit: the Conduit could distribute the 

Shares to investors, sell them itself, or appoint a third party, which could be a JP Morgan PI 

affiliate, to assist with the sale of the Shares and then distribute the cash proceeds to investors.   

15. As permitted by the Offering Documents and Offering Agreements, JP Morgan PI 

appointed Distribution Management to sell the Shares it received during the Relevant Period.  

Distribution Management’s fee arrangement was limited to a fee on actual realized sale prices of 

distributions, and did not include an incentive fee or periodic management fee.  Until 2021, 

Distribution Management sold all Shares received by the Conduits, and the Private Bank 

subsequently distributed the cash proceeds pro rata to the corresponding Conduit investors.   



 
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16. Distribution Management’s mandate was memorialized in a distribution 

management agreement between JP Morgan PI and JP Morgan IM, which specified that “[JP 

Morgan IM] shall have complete discretion, power and authority to make sales of the securities 

from time to time deposited in the Portfolio, or part interests therein.”  A 2015 amendment to the 

distribution management agreement required that Distribution Management “generally seek to sell 

each security within six months following its deposit in the Portfolio,” subject to market and other 

conditions.  Conduit investors were neither party to, nor otherwise made aware of, either the initial 

distribution management agreement or the 2015 amendment.  

17. Although the Offering Documents noted that sales of the Shares might not 

“immediately” follow the distribution and that the amount of cash proceeds realized might be less 

than the value of the Shares at distribution, the Offering Documents specified that the Shares 

would be sold “as promptly as practicable under reasonable commercial terms.” 

The Practices Related to the Sales of Shares Do Not Match  

JP Morgan Securities’ Disclosures to Conduit Investors 

18. The Offering Documents and Offering Agreements did not disclose to Conduit 

investors Distribution Management’s exercise of complete discretion over when and how to sell the 

Shares.  Distribution Management’s exercise of discretion was, at times, not consistent with the 

disclosure to Conduit investors that Shares would be sold as promptly as practicable under 

reasonable commercial terms.   

19. JP Morgan Advisors and Private Bank customers made their Conduit investments 

via their brokerage accounts.  The corresponding brokerage account agreements provided that 

neither JP Morgan nor any JP Morgan entity party to the agreement “will act as an investment 

adviser to you.” 

20. The Offering Documents stated that neither JP Morgan nor its financial advisors 

would be acting in an advisory capacity or otherwise exercising discretion.  Instead, they described 

JP Morgan PI’s role as Conduit administrator as limited to performing administrative or ministerial 

duties with respect to the Conduits.  JP Morgan PI’s Form ADV filings during the Relevant Period 

similarly disclosed that JP Morgan PI was acting solely in an administrative capacity with respect 

to the Conduits and stated expressly that “[JP Morgan PI] does not provide investment advice to 

the [Conduits].”   

21. But when selling the Shares, Distribution Management—which is part of JP 

Morgan IM and was engaged by JP Morgan PI—exercised its discretion over when, at what price, 

and at what volumes to sell.   Specifically, Distribution Management used its judgment in 

determining when to sell the Shares, considering, among other factors, its historical practices, the 

size of the in-kind distribution, liquidity of the market and of the stock, patterns of distributions, 

fund manager behavior, and other “idiosyncratic” market factors. 

22. According to an internal memorandum summarizing Distribution Management’s 

investment process, in managing the sales of Shares, Distribution Management’s historical practice 

was generally to hold the Shares following a distribution for around 60 days because the Shares 



 
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tended to decline in price immediately upon distribution and then return to or rise above the 

distribution price within 90 days.  Distribution Management observed that immediate selling could 

generate declines in value for Conduit investors.  These views informed Distribution 

Management’s decisions in its handling of distributions for certain Conduit investors. 

23. During the Relevant Period, in exercising its complete discretion for Conduit 

investors, Distribution Management frequently held the Shares for weeks or months before selling 

them.  While Distribution Management held the Shares, the broader equity markets and certain of 

the Shares declined in value.  On average, during 2020 and 2021, for example, Distribution 

Management held the Shares for more than 100 trading days (or five months), and certain Shares 

were not sold by Distribution Management for more than a year.   

24. These prolonged holding periods meant that certain of the Shares were subject to 

substantial market risk and material declines in value during the Relevant Period, including as a 

result of broader equity market declines.       

25. As a result of JP Morgan Securities’ negligent failure to disclose in the Offering 

Documents that Distribution Management exercised complete discretion over the timing of the sale 

of the Shares, Conduit investors were not on notice that their investments were subject to 

substantial market risk associated with the delay in selling the Shares.  Conduit investor accounts 

that suffered declines in value during the Relevant Period will receive payments as described in 

this Order.  This Order does not make any findings as to the specific dates by which Distribution 

Management should have begun selling the Shares or the extent to which declines in value reflect 

losses caused by the conduct described herein. 

JP Morgan Securities’ 2021 Election Forms Were Still Inaccurate 

26. In January, March, and June 2021, investors in certain Conduits were provided an 

opportunity to elect to receive the Shares themselves, rather than cash proceeds upon Distribution 

Management’s sale of the Shares.  Conduit investors were provided this opportunity via a form 

letter that contained an election form.  Investors who did not return the election form by the 

deadline were deemed to be cash-electing investors (i.e., they would receive cash proceeds after 

Distribution Management sold the Shares).   

27. The 2021 disclosures and accompanying election form did not describe the role of 

JP Morgan IM or Distribution Management in managing the sale of the Shares or disclose that 

Distribution Management was actively managing these sales, including by exercising complete 

discretion over the timing of the sales, which could impact the amount of cash proceeds.   

28. Instead, the election form contained one checkbox by which the investor could 

“irrevocably elect[] to become a Distribution In-Kind Electing Investor.”  The disclosures stated 

that the election opportunity was based on requests from investors to receive distributions in kind 

and explained that each Conduit’s “operating agreement” (i.e., LLC agreement or LPA) allowed 

the Board to sell the Shares and distribute the cash proceeds to investors, which it had done to date.  

These 2021 disclosures did not disclose to Conduit investors that, by electing to receive cash 

distributions or defaulting to such distributions by not responding, Distribution Management would 



 
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have complete discretion as to when and how to sell the Shares, although they would generally 

seek to sell each security within six months.  

29. Some Conduit investors would have elected to receive the Shares, rather than cash, 

had they understood that Distribution Management would exercise complete discretion over the 

timing of the sale of the Shares. 

JP Morgan Securities’ 2022 Election Form 

30. In or around June 2022, and in response to complaints from certain Conduit 

investors about long holding periods, JP Morgan PI amended its distribution management 

agreement with JP Morgan IM to require Distribution Management “to seek to initiate the sale of 

the entire position of a security” within 45 calendar days after the distribution (rather than seeking 

to sell within six months), subject to market and other conditions.  In conjunction with this 

amendment, JP Morgan Securities provided the investors in certain Conduits with another 

opportunity to elect to have the Conduit provide the Shares to them directly, rather than receive 

cash proceeds from sales of the Shares.  The notice announcing the June 2022 election opportunity 

disclosed the amendment, stating that “guidelines associated with the timing of the sales of 

securities distributed in-kind have changed” and thus the Conduit was “offering investors another 

opportunity to elect to receive distributions in-kind or cash proceeds[.]” 

31. The June 2022 notice and election form disclosed Distribution Management’s 

exercise of complete discretion.  Specifically, the notice disclosed that “[Distribution Management] 

has historically served as the distribution manager for Conduits administered by [JP Morgan PI] as 

well as third party investors[,]” as appointed by the Conduits’ administrator, JP Morgan PI, and, 

“[u]nder the terms of the contractual appointment, [Distribution Management] is given 

discretionary authority to manage the sale of distributed securities on behalf of the Conduit.”  The 

notice stated further that “it may take several weeks or more for securities to be sellable by 

[Distribution Management] . . . and that market sales by [Distribution Management] will 

typically occur over time, which may vary from weeks to several months depending on the 

availability of market trading liquidity and position size considerations” (emphasis in original).   

32. The June 2022 election form provided two checkboxes so that a Conduit investor 

could elect either “to become a Distributions In-Kind Electing Investor” or “Cash via Active 

Management Electing Investor.”  

Violations 

33. As a result of the conduct described above, JP Morgan Securities willfully violated 

Section 17(a)(2) of the Securities Act, which prohibits any person, in the offer or sale of any 

securities, from directly or indirectly obtaining money or property by means of any untrue 

statement of a material fact or any omission to state a material fact necessary in order to make the 

statements made, in light of the circumstances under which they were made, not misleading. 

34. As a result of the conduct described above, JP Morgan Securities willfully violated 

Section 17(a)(3) of the Securities Act, which prohibits any person, in the offer or sale of any 



 
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securities, from directly or indirectly engaging in any transaction, practice, or course of business 

which operates or would operate as a fraud or deceit upon the purchaser.   

JP Morgan Securities’ Remedial Efforts 

35. In determining to accept the Offer, the Commission considered remedial acts 

undertaken by Respondent. 

36. Specifically, in June 2022, prior to the inception of the Commission staff’s 

investigation, JP Morgan Securities provided Conduit investors with an election form and notice 

that disclosed Distribution Management’s exercise of complete discretion to sell the Shares.   

37. Also in June 2022, JP Morgan Securities, through counsel, self-reported to the 

Commission staff that certain Conduit investors had complained to JP Morgan Securities in 2021 

and 2022 as a result of Distribution Management’s failure to promptly sell certain Shares.  

38. In August 2022, JP Morgan Securities revised the relevant section of the Offering 

Documents to specify, for distributions in-kind being sold by the Conduit, that JP Morgan PI or 

an affiliate would “seek to sell or otherwise liquidate such assets as soon as reasonably 

practicable, as determined in the discretion of the provider of such liquidation services, subject to 

then current market conditions, liquidity limitations, other external factors, and at such price and 

terms deemed appropriate by such service provider in its discretion.”  JP Morgan Securities 

similarly revised the corresponding Offering Agreement section to specify that sales of Shares 

“may occur over an extended period of time” (emphasis in original). 

39. In October 2024, JP Morgan Securities deposited in a designated account 

$100,000,000 in connection with this resolution.  JP Morgan Securities will distribute 

$90,000,000 of these funds to Conduit investors as a voluntary payment and the remaining 

$10,000,000 as a civil penalty to be distributed from a Fair Fund, in accordance with the 

calculations and methodology described in Section IV.C.  JP Morgan Securities has further 

agreed to provide to the Commission staff the items described in Subsections IV.C(4), IV.C(6), 

and IV.C(10) for the $90,000,000 voluntary payment. 

IV. 

 In view of the foregoing, the Commission deems it appropriate, and in the public interest, 

to impose the sanctions agreed to in Respondent JP Morgan Securities’ Offer. 

 Accordingly, pursuant to Section 8A of the Securities Act, Sections 15(b)(4) and 21C of 

the Exchange Act, and Section 203(e) of the Advisers Act, it is hereby ORDERED that: 

A. Respondent JP Morgan Securities cease and desist from committing or causing any 

violations and any future violations of Sections 17(a)(2) and (3) of the Securities Act.   

B. Respondent JP Morgan Securities is censured. 



 
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C. Respondent JP Morgan Securities shall pay a civil money penalty in the amount of 

$10,000,000 as follows: 

(1) Pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, as amended, 

a Fair Fund is created for the penalties, described above, for distribution to 

Conduit investors who suffered declines in the value of their Shares during 

the Relevant Period.  Amounts ordered to be paid as civil money penalties 

pursuant to this Order shall be treated as penalties paid to the government 

for all purposes, including all tax purposes.  To preserve the deterrent effect 

of the civil penalty, Respondent JP Morgan Securities agrees that in any 

Related Investor Action, it shall not argue that it is entitled to, nor shall it 

benefit by, offset or reduction of any award of compensatory damages by 

the amount of any part of Respondent JP Morgan Securities’ payment of a 

civil penalty in this action (“Penalty Offset”).  If the court in any Related 

Investor Action grants such a Penalty Offset, Respondent JP Morgan 

Securities agrees that it shall, within 30 days after entry of a final order 

granting the Penalty Offset, notify the Commission’s counsel in this action 

and pay the amount of the Penalty Offset to the Securities and Exchange 

Commission.  Such a payment shall not be deemed an additional civil 

penalty and shall not be deemed to change the amount of the civil penalty 

imposed in this proceeding.  For purposes of this paragraph, a “Related 

Investor Action” means a private damages action brought against 

Respondent JP Morgan Securities by or on behalf of one or more investors 

based on substantially the same facts as alleged in the Order instituted by 

the Commission in this proceeding. 

(2) On or before October 30, 2024, Respondent JP Morgan Securities deposited 

the Fair Fund and the funds for a voluntary repayment into a designated 

account at a financial institution not unacceptable to the Commission staff 

and Respondent JP Morgan Securities provided evidence of such deposit in 

a form acceptable to the Commission staff.  The account holding the assets 

of the Fair Fund shall bear the name and the taxpayer identification number 

of the Fair Fund.    

(3) Respondent JP Morgan Securities shall be responsible for administering the 

Fair Fund and may hire a professional at its own cost to assist it in the 

administration of the distribution.  The costs and expenses of administering 

the Fair Fund, including any such professional services, shall be borne by 

Respondent JP Morgan Securities and shall not be paid out of the Fair Fund.            

(4) Respondent JP Morgan Securities shall distribute from the Fair Fund to 

each affected Conduit investor account an amount pursuant to a 

disbursement calculation (the “Calculation”) that will be submitted to, 

reviewed, and approved by the Commission staff in accordance with 

Subsection IV.C(5).  The Calculation shall be subject to a de minimis 

threshold of $10 for any former Conduit investor account; otherwise, no 



 
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such threshold shall apply.  JP Morgan Securities has also agreed that the 

Calculation will include the voluntary payment described in Subsection 

III.39.  No portion of the Fair Fund shall be paid to any affected Conduit 

investor account in which Respondent JP Morgan Securities, or any of its 

current or former officers or directors, has a financial interest.2 

(5) Respondent JP Morgan Securities shall, within thirty (30) days from the 

date of this Order, submit the Calculation to the Commission staff for 

review and approval.  At or around the time of submission of the proposed 

Calculation to the staff, Respondent JP Morgan Securities shall make itself 

available, and shall require any third-parties or professionals retained by 

Respondent JP Morgan Securities to assist in formulating the methodology 

for its Calculation and/or administration of the distribution to be available, 

for a conference call with the Commission staff to explain the methodology 

used in preparing the proposed Calculation and its implementation, and to 

provide the staff with an opportunity to ask questions.  Respondent JP 

Morgan Securities also shall provide the Commission staff such additional 

information and supporting documentation as the Commission staff may 

request for the purpose of its review.  In the event of one or more objections 

by the Commission staff to Respondent JP Morgan Securities’ proposed 

Calculation or any of its information or supporting documentation, 

Respondent JP Morgan Securities shall submit a revised Calculation for the 

review and approval of the Commission staff or additional information or 

supporting documentation within ten (10) days of the date that the 

Commission staff notifies Respondent JP Morgan Securities of the 

objection.  The revised Calculation shall be subject to all of the provisions 

of Subsection IV.C(5).  

(6) Respondent JP Morgan Securities shall, within fourteen (14) days of the 

written approval of the Calculation by the Commission staff, submit a 

payment file (the “Payment File”) for review and acceptance by the 

Commission staff demonstrating the application of the methodology to each 

affected investor.  The Payment File should identify, at a minimum, (1) the 

name of each affected investor; (2) the net amount of the payment to be 

made, less any tax withholding; and (3) the amount of any de minimis 

threshold to be applied.  JP Morgan Securities has also agreed that the 

Payment File will identify, at a minimum, the items listed in the preceding 

sentence for the voluntary payment described in Section III.39.  Respondent 

JP Morgan Securities shall exclude from the Payment File all payments to 

payees that appear on the U.S. Treasury Department Specially Designated 

Nationals List.   

                                                 
2  For purposes of this Subsection IV.C(4), an “officer” means anyone listed as an executive 

officer on J.P. Morgan Securities’ Form BD and/or Form ADV. 



 
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(7) Respondent JP Morgan Securities shall disburse all amounts payable to 

affected Conduit investors from the Fair Fund within ninety (90) days of the 

date the Commission staff accepts the Payment File, unless such time period 

is extended as provided in Paragraph (11) of this Subsection IV.C.  

Respondent JP Morgan Securities shall notify the Commission staff of the 

date(s) and the amount paid in the distribution. 

(8) If Respondent JP Morgan Securities is unable to distribute or return any 

portion of the Fair Fund for any reason, including an inability to locate an 

affected Conduit investor account or a beneficial owner of an affected 

investor account or any other factors beyond Respondent JP Morgan 

Securities’ control, Respondent JP Morgan Securities shall transfer any such 

undistributed funds to the Commission for transmittal to the United States 

Treasury in accordance with Section 21F(g)(3) of the Exchange Act once 

the distribution of funds is complete and before the final accounting 

provided for in Paragraph (10) of this Subsection IV.C is submitted to the 

Commission staff.  Payment must be made in one of the following ways:   

a. Respondent may transmit payment electronically to the 

Commission, which will provide detailed ACH transfer/Fedwire 

instructions upon request;  

b. Respondent may make direct payment from a bank account via 

Pay.gov through the SEC website at 

http://www.sec.gov/about/offices/ofm.htm; or  

c. Respondent may pay by certified check, bank cashier’s check, or 

United States postal money order, made payable to the 

Securities and Exchange Commission and hand-delivered or 

mailed to:  

Enterprise Services Center 

Accounts Receivable Branch 

HQ Bldg., Room 181, AMZ-341 

6500 South MacArthur Boulevard 

Oklahoma City, OK 73169 

 

Payments by check or money order must be accompanied by a cover letter 

identifying JP Morgan Securities as a Respondent in these proceedings, and 

the file number of these proceedings; a copy of the cover letter and check or 

money order must be sent to Lee A. Greenwood, Assistant Regional 

Director, Asset Management Unit, Division of Enforcement, Securities and 

Exchange Commission, 100 Pearl Street, Suite 20-100, New York, New 

York, 10004, or such other address as the Commission staff may provide.   

http://www.sec.gov/about/offices/ofm.htm


 
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(9) A Fair Fund is a Qualified Settlement Fund (“QSF”) under Section 468B(g) 

of the Internal Revenue Code (“IRC”), 26 U.S.C. §§ 1.468B.1-1.468B.5. 

Respondent JP Morgan Securities agrees to be responsible for all tax 

compliance responsibilities associated with the Fair Fund’s status as a 

QSF.  These responsibilities involve reporting and paying requirements of 

the Fund, including but not limited to: (1) tax returns for the Fair Fund; (2) 

information return reporting regarding the payments to investors, as 

required by applicable codes and regulations; and (3) obligations resulting 

from compliance with the Foreign Account Tax Compliance Act (FATCA).  

Respondent JP Morgan Securities may retain any professional services 

necessary.  The costs and expenses of tax compliance, including any such 

professional services, shall be borne by Respondent JP Morgan Securities 

and shall not be paid out of the Distribution Fund.  

(10) Within one hundred fifty (150) days after Respondent JP Morgan Securities 

completes the disbursement of all amounts payable to affected investors 

from the Fair Fund, Respondent JP Morgan Securities shall return all 

undisbursed funds from the Fair Fund to the Commission pursuant to the 

instructions set forth in Subsection IV.C(8).  Respondent JP Morgan 

Securities shall then submit to the Commission staff a final accounting and 

certification of the disposition of the Fair Fund for Commission approval, 

which final accounting and certification shall include, but not be limited 

to:  (1) the amount paid to each payee, with the reasonable interest amount, 

if any, reported separately; (2) the date of each payment; (3) the check 

number or other identifier of the money transferred; (4) the amount of any 

returned payment and the date received; (5) a description of the efforts to 

locate a prospective payee whose payment was returned or to whom 

payment was not made for any reason; (6) the total amount, if any, to be 

forwarded to the Commission for transfer to the United States Treasury; and 

(7) an affirmation that Respondent JP Morgan Securities has made 

payments from the Distribution Fund to affected investors in accordance 

with the Calculation approved by the Commission staff.  JP Morgan 

Securities has also agreed that this final accounting will identify the items 

listed in the preceding sentence for the voluntary payment described in 

Subsection III.39.  The final accounting and certification shall be submitted 

under a cover letter that identifies JP Morgan Securities and the file number 

of these proceedings to Lee A. Greenwood, Assistant Regional Director, 

Asset Management Unit, Division of Enforcement, Securities and Exchange 

Commission, 100 Pearl Street, Suite 20-100, New York, New York, 

10004.  Respondent JP Morgan Securities shall provide any and all 

supporting documentation for the accounting and certification to the 

Commission staff upon its request and shall cooperate with any additional 

requests by the Commission staff in connection with the accounting and 

certification.  



 
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(11) The Commission staff may extend any of the procedural dates set forth in 

this Subsection IV.C for good cause shown.  Deadlines for dates relating to 

the Fair Fund shall be counted in calendar days, except if the last day falls 

on a weekend or federal holiday, the next business day shall be considered 

the last day.  

 By the Commission. 

 

Vanessa A. Countryman 

         Secretary 

 


	UNITED STATES OF AMERICA
	Respondent
	Other Relevant Entities
	JP Morgan’s Conduit Program

UNITED STATES OF AMERICA 

 Before the 

 SECURITIES AND EXCHANGE COMMISSION 

 

SECURITIES ACT OF 1933 

Release No. 11324 / October 31, 2024 

 

SECURITIES EXCHANGE ACT OF 1934 

Release No. 101495 / October 31, 2024 

 

INVESTMENT ADVISERS ACT OF 1940 

Release No. 6760 / October 31, 2024 

 

ADMINISTRATIVE PROCEEDING 

File No. 3-22280 

 

In the Matter of 

J.P. Morgan Securities LLC, 

Respondent. 

ORDER INSTITUTING ADMINISTRATIVE 

AND CEASE-AND-DESIST PROCEEDINGS 

PURSUANT TO SECTION 8A OF THE 

SECURITIES ACT OF 1933, SECTIONS 

15(b)(4) AND 21C OF THE SECURITIES 

EXCHANGE ACT OF 1934, AND SECTION 

203(e) OF THE INVESTMENT ADVISERS 

ACT OF 1940, MAKING FINDINGS, AND 

IMPOSING REMEDIAL SANCTIONS AND 

A CEASE-AND-DESIST ORDER 

I. 

 The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 

public interest that administrative and cease-and-desist proceedings be, and hereby are, instituted 

pursuant to Section 8A of the Securities Act of 1933 (“Securities Act”), Sections 15(b)(4) and 21C 

of the Securities Exchange Act of 1934 (“Exchange Act”), and Section 203(e) of the Investment 

Advisers Act of 1940 (“Advisers Act”) against J.P. Morgan Securities LLC (“Respondent” or “JP 

Morgan Securities”).   

II. 

 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 

of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 

purpose of these proceedings and any other proceedings brought by or on behalf of the 



 
2 

Commission, or to which the Commission is a party, and without admitting or denying the findings 

herein, except as to the Commission’s jurisdiction over it and the subject matter of these 

proceedings, which are admitted, Respondent consents to the entry of this Order Instituting 

Administrative and Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 

1933, Sections 15(b)(4) and 21C of the Securities Exchange Act of 1934, and Section 203(e) of the 

Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions and a 

Cease-and-Desist order (“Order”), as set forth below. 

III. 

 On the basis of this Order and Respondent’s Offer, the Commission1 finds that:   

Summary 

1. These proceedings arise from misleading disclosures that JP Morgan Securities used 

with brokerage customers investing in its “Conduit” products, which pooled customer money and 

invested in private equity or hedge funds that customers might not be able to access directly.  On 

occasion, the third-party fund in which a Conduit was invested would distribute shares of 

companies that had recently undertaken an initial public offering (“IPO”) or another liquidity event 

(referenced herein as “Shares”) to the fund’s limited partners, including the Conduit.  Each Conduit 

appointed J.P. Morgan Private Investments Inc. (“JP Morgan PI”) as administrator to the Conduit.  

JP Morgan PI, in turn, appointed the Private Equity Distribution Management (“Distribution 

Management”) team, a part of J.P. Morgan Investment Management Inc. (“JP Morgan IM”), to sell 

the Shares.  J.P. Morgan Private Bank (“Private Bank”) then distributed the cash from the sales to 

Conduit investors via their brokerage accounts.   

2. In the offering documents for the Conduits, customers were told, among other 

things, that such sales “may not immediately follow the distribution” but would occur “as promptly 

as practicable under reasonable commercial terms.”  Contrary to these disclosures, however, 

Distribution Management actively managed the Shares, exercising complete discretion as to when 

to sell and the number of shares to be sold, and at times holding the Shares for several months 

before selling them.  Until June 2022, JP Morgan Securities did not disclose that Distribution 

Management would be exercising complete investment discretion over these sales and that, as a 

result, certain Conduit investors would be subject to market risk due to the timing of these sales.   

3. Between January 2019 and June 2022 (the “Relevant Period”), in part in response to 

challenging market conditions, Distribution Management held portions of the Shares that certain 

Conduits received for increasingly longer periods before selling them in their entirety, with holding 

periods for certain distributions extending for several months.  Because the share price of many of 

the companies declined after their IPOs, the value of certain Shares sold by Distribution 

Management declined significantly from the price at which Distribution Management initially 

                                                 
1  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not 

binding on any other person or entity in this or any other proceeding. 



 
3 

received them.  In connection with this resolution, JP Morgan Securities will pay 1,588 investor 

accounts $100,000,000. 

Respondent 

4. JP Morgan Securities is a Delaware limited liability company with its principal 

place of business in New York, New York.  It has been dually registered with the Commission as a 

broker-dealer and investment adviser since December 13, 1985, and April 3, 1965, respectively.  In 

its Form ADV dated March 28, 2024, JP Morgan Securities reports that it has approximately $249.7 

billion in regulatory assets under management.  JP Morgan Securities is a wholly owned subsidiary 

of JPMorgan Chase & Co. (“JP Morgan”), a global financial services firm incorporated in Delaware 

and headquartered in New York, New York.  JP Morgan Securities offered interests in and served as 

the placement agent for the Conduit products, which it sold to customers of J.P. Morgan Private 

Bank (“Private Bank”) and J.P. Morgan Advisors (“JP Morgan Advisors”), two of JP Morgan’s 

business segments.   

Other Relevant Entities 

5. JP Morgan PI is a Delaware corporation and wholly owned subsidiary of JP 

Morgan.  The Board of each Conduit delegated to JP Morgan PI the rights, powers, and duties to 

function as the Conduit’s administrator.  JP Morgan PI has been registered with the Commission as 

an investment adviser since May 15, 1992. 

 

6. JP Morgan IM, an affiliate of JP Morgan PI, is an investment adviser that has been 

registered with the Commission since April 4, 1984.  Within JP Morgan IM, Distribution 

Management provides distribution management services, typically on behalf of advisory clients.  

JP Morgan PI appointed Distribution Management to manage the sales of the Shares distributed to 

the Conduits.  

JP Morgan’s Conduit Program 

7. Beginning in the early 2000s, JP Morgan Securities began offering Private Bank 

and JP Morgan Advisors brokerage customers the opportunity to invest indirectly in third-party 

funds advised by private equity or hedge fund managers via the Conduit program.  The Conduits, 

themselves private funds in which brokerage customers invested, provided access to those third-

party funds to customers who might not otherwise be able to invest directly, including because of 

possible minimum investment requirements.  By committing at least $250,000, Private Bank or JP 

Morgan Advisors customers could invest in a Conduit, either through a Delaware limited liability 

company (for onshore customers) or Cayman Island exempted limited partnership (for offshore 

customers).  These brokerage customer funds were pooled and, in turn, used by the Conduit to 

purchase limited partnership interests in a third-party private equity or hedge fund.  Distributions to 

the Conduit from the third-party fund were then made to Conduit investors pro rata based on their 

percentage ownership interest in the Conduit.   

8. During the Relevant Period, JP Morgan Securities raised more than $6.5 billion 

from Private Bank and JP Morgan Advisors investors in the Conduits.  As disclosed, JP Morgan 



 
4 

Securities charged these investors a percentage of their commitment amounts as an origination fee, 

and earned fees from the underlying third-party funds for placing and administering those 

customers’ investments into those funds.    

9. Potential Conduit investors were offered Conduit limited liability company or 

limited partner interests through an offering memorandum or private placement memorandum 

(“Offering Documents”) and became members of the Conduit via either a limited liability 

company agreement, if an onshore customer, or a limited partnership agreement (“LPA”), if an 

offshore customer (both agreements are collectively referenced herein as the “Offering 

Agreements”).   

10. As set forth in the Offering Agreements, the “sole purpose” of the Conduit is to 

invest “limited partner interests” in an underlying third-party fund or any alternative investment 

vehicles established under the Offering Agreements and the Conduit is granted the “power and 

authority” to effectuate that purpose.   

11. Each Conduit is managed by a board of managers (“Board”).  The Board has 

“complete discretion to manage and control the business and affairs of the [Conduit], to make all 

decisions affecting the business and affairs of the [Conduit] [,] and to take all such actions as it 

deems necessary or appropriate to accomplish the purposes of the [Conduit] . . . .”  

12. The Offering Documents authorized the Board to delegate to an administrator the 

administrative and ministerial tasks necessary to effect the purpose of the Conduit—that is, to 

invest in the third-party fund.  In each instance, the Board appointed JP Morgan PI as the 

administrator.   

Distributions In-Kind and Related Disclosures 

13. Many of the third-party funds in which the Conduits invested purchased shares in 

early stage, private companies that became publicly traded during the life of the fund.  Upon 

becoming publicly traded, shares of these newly public securities were, at times, distributed to the 

fund’s limited partners (including the Conduits), known as in-kind distributions, rather than sold 

and distributed in cash, known as cash distributions.   

14. The Offering Documents and Offering Agreements contemplated and described 

what would then happen upon Share distribution to the Conduit: the Conduit could distribute the 

Shares to investors, sell them itself, or appoint a third party, which could be a JP Morgan PI 

affiliate, to assist with the sale of the Shares and then distribute the cash proceeds to investors.   

15. As permitted by the Offering Documents and Offering Agreements, JP Morgan PI 

appointed Distribution Management to sell the Shares it received during the Relevant Period.  

Distribution Management’s fee arrangement was limited to a fee on actual realized sale prices of 

distributions, and did not include an incentive fee or periodic management fee.  Until 2021, 

Distribution Management sold all Shares received by the Conduits, and the Private Bank 

subsequently distributed the cash proceeds pro rata to the corresponding Conduit investors.   



 
5 

16. Distribution Management’s mandate was memorialized in a distribution 

management agreement between JP Morgan PI and JP Morgan IM, which specified that “[JP 

Morgan IM] shall have complete discretion, power and authority to make sales of the securities 

from time to time deposited in the Portfolio, or part interests therein.”  A 2015 amendment to the 

distribution management agreement required that Distribution Management “generally seek to sell 

each security within six months following its deposit in the Portfolio,” subject to market and other 

conditions.  Conduit investors were neither party to, nor otherwise made aware of, either the initial 

distribution management agreement or the 2015 amendment.  

17. Although the Offering Documents noted that sales of the Shares might not 

“immediately” follow the distribution and that the amount of cash proceeds realized might be less 

than the value of the Shares at distribution, the Offering Documents specified that the Shares 

would be sold “as promptly as practicable under reasonable commercial terms.” 

The Practices Related to the Sales of Shares Do Not Match  

JP Morgan Securities’ Disclosures to Conduit Investors 

18. The Offering Documents and Offering Agreements did not disclose to Conduit 

investors Distribution Management’s exercise of complete discretion over when and how to sell the 

Shares.  Distribution Management’s exercise of discretion was, at times, not consistent with the 

disclosure to Conduit investors that Shares would be sold as promptly as practicable under 

reasonable commercial terms.   

19. JP Morgan Advisors and Private Bank customers made their Conduit investments 

via their brokerage accounts.  The corresponding brokerage account agreements provided that 

neither JP Morgan nor any JP Morgan entity party to the agreement “will act as an investment 

adviser to you.” 

20. The Offering Documents stated that neither JP Morgan nor its financial advisors 

would be acting in an advisory capacity or otherwise exercising discretion.  Instead, they described 

JP Morgan PI’s role as Conduit administrator as limited to performing administrative or ministerial 

duties with respect to the Conduits.  JP Morgan PI’s Form ADV filings during the Relevant Period 

similarly disclosed that JP Morgan PI was acting solely in an administrative capacity with respect 

to the Conduits and stated expressly that “[JP Morgan PI] does not provide investment advice to 

the [Conduits].”   

21. But when selling the Shares, Distribution Management—which is part of JP 

Morgan IM and was engaged by JP Morgan PI—exercised its discretion over when, at what price, 

and at what volumes to sell.   Specifically, Distribution Management used its judgment in 

determining when to sell the Shares, considering, among other factors, its historical practices, the 

size of the in-kind distribution, liquidity of the market and of the stock, patterns of distributions, 

fund manager behavior, and other “idiosyncratic” market factors. 

22. According to an internal memorandum summarizing Distribution Management’s 

investment process, in managing the sales of Shares, Distribution Management’s historical practice 

was generally to hold the Shares following a distribution for around 60 days because the Shares 



 
6 

tended to decline in price immediately upon distribution and then return to or rise above the 

distribution price within 90 days.  Distribution Management observed that immediate selling could 

generate declines in value for Conduit investors.  These views informed Distribution 

Management’s decisions in its handling of distributions for certain Conduit investors. 

23. During the Relevant Period, in exercising its complete discretion for Conduit 

investors, Distribution Management frequently held the Shares for weeks or months before selling 

them.  While Distribution Management held the Shares, the broader equity markets and certain of 

the Shares declined in value.  On average, during 2020 and 2021, for example, Distribution 

Management held the Shares for more than 100 trading days (or five months), and certain Shares 

were not sold by Distribution Management for more than a year.   

24. These prolonged holding periods meant that certain of the Shares were subject to 

substantial market risk and material declines in value during the Relevant Period, including as a 

result of broader equity market declines.       

25. As a result of JP Morgan Securities’ negligent failure to disclose in the Offering 

Documents that Distribution Management exercised complete discretion over the timing of the sale 

of the Shares, Conduit investors were not on notice that their investments were subject to 

substantial market risk associated with the delay in selling the Shares.  Conduit investor accounts 

that suffered declines in value during the Relevant Period will receive payments as described in 

this Order.  This Order does not make any findings as to the specific dates by which Distribution 

Management should have begun selling the Shares or the extent to which declines in value reflect 

losses caused by the conduct described herein. 

JP Morgan Securities’ 2021 Election Forms Were Still Inaccurate 

26. In January, March, and June 2021, investors in certain Conduits were provided an 

opportunity to elect to receive the Shares themselves, rather than cash proceeds upon Distribution 

Management’s sale of the Shares.  Conduit investors were provided this opportunity via a form 

letter that contained an election form.  Investors who did not return the election form by the 

deadline were deemed to be cash-electing investors (i.e., they would receive cash proceeds after 

Distribution Management sold the Shares).   

27. The 2021 disclosures and accompanying election form did not describe the role of 

JP Morgan IM or Distribution Management in managing the sale of the Shares or disclose that 

Distribution Management was actively managing these sales, including by exercising complete 

discretion over the timing of the sales, which could impact the amount of cash proceeds.   

28. Instead, the election form contained one checkbox by which the investor could 

“irrevocably elect[] to become a Distribution In-Kind Electing Investor.”  The disclosures stated 

that the election opportunity was based on requests from investors to receive distributions in kind 

and explained that each Conduit’s “operating agreement” (i.e., LLC agreement or LPA) allowed 

the Board to sell the Shares and distribute the cash proceeds to investors, which it had done to date.  

These 2021 disclosures did not disclose to Conduit investors that, by electing to receive cash 

distributions or defaulting to such distributions by not responding, Distribution Management would 



 
7 

have complete discretion as to when and how to sell the Shares, although they would generally 

seek to sell each security within six months.  

29. Some Conduit investors would have elected to receive the Shares, rather than cash, 

had they understood that Distribution Management would exercise complete discretion over the 

timing of the sale of the Shares. 

JP Morgan Securities’ 2022 Election Form 

30. In or around June 2022, and in response to complaints from certain Conduit 

investors about long holding periods, JP Morgan PI amended its distribution management 

agreement with JP Morgan IM to require Distribution Management “to seek to initiate the sale of 

the entire position of a security” within 45 calendar days after the distribution (rather than seeking 

to sell within six months), subject to market and other conditions.  In conjunction with this 

amendment, JP Morgan Securities provided the investors in certain Conduits with another 

opportunity to elect to have the Conduit provide the Shares to them directly, rather than receive 

cash proceeds from sales of the Shares.  The notice announcing the June 2022 election opportunity 

disclosed the amendment, stating that “guidelines associated with the timing of the sales of 

securities distributed in-kind have changed” and thus the Conduit was “offering investors another 

opportunity to elect to receive distributions in-kind or cash proceeds[.]” 

31. The June 2022 notice and election form disclosed Distribution Management’s 

exercise of complete discretion.  Specifically, the notice disclosed that “[Distribution Management] 

has historically served as the distribution manager for Conduits administered by [JP Morgan PI] as 

well as third party investors[,]” as appointed by the Conduits’ administrator, JP Morgan PI, and, 

“[u]nder the terms of the contractual appointment, [Distribution Management] is given 

discretionary authority to manage the sale of distributed securities on behalf of the Conduit.”  The 

notice stated further that “it may take several weeks or more for securities to be sellable by 

[Distribution Management] . . . and that market sales by [Distribution Management] will 

typically occur over time, which may vary from weeks to several months depending on the 

availability of market trading liquidity and position size considerations” (emphasis in original).   

32. The June 2022 election form provided two checkboxes so that a Conduit investor 

could elect either “to become a Distributions In-Kind Electing Investor” or “Cash via Active 

Management Electing Investor.”  

Violations 

33. As a result of the conduct described above, JP Morgan Securities willfully violated 

Section 17(a)(2) of the Securities Act, which prohibits any person, in the offer or sale of any 

securities, from directly or indirectly obtaining money or property by means of any untrue 

statement of a material fact or any omission to state a material fact necessary in order to make the 

statements made, in light of the circumstances under which they were made, not misleading. 

34. As a result of the conduct described above, JP Morgan Securities willfully violated 

Section 17(a)(3) of the Securities Act, which prohibits any person, in the offer or sale of any 



 
8 

securities, from directly or indirectly engaging in any transaction, practice, or course of business 

which operates or would operate as a fraud or deceit upon the purchaser.   

JP Morgan Securities’ Remedial Efforts 

35. In determining to accept the Offer, the Commission considered remedial acts 

undertaken by Respondent. 

36. Specifically, in June 2022, prior to the inception of the Commission staff’s 

investigation, JP Morgan Securities provided Conduit investors with an election form and notice 

that disclosed Distribution Management’s exercise of complete discretion to sell the Shares.   

37. Also in June 2022, JP Morgan Securities, through counsel, self-reported to the 

Commission staff that certain Conduit investors had complained to JP Morgan Securities in 2021 

and 2022 as a result of Distribution Management’s failure to promptly sell certain Shares.  

38. In August 2022, JP Morgan Securities revised the relevant section of the Offering 

Documents to specify, for distributions in-kind being sold by the Conduit, that JP Morgan PI or 

an affiliate would “seek to sell or otherwise liquidate such assets as soon as reasonably 

practicable, as determined in the discretion of the provider of such liquidation services, subject to 

then current market conditions, liquidity limitations, other external factors, and at such price and 

terms deemed appropriate by such service provider in its discretion.”  JP Morgan Securities 

similarly revised the corresponding Offering Agreement section to specify that sales of Shares 

“may occur over an extended period of time” (emphasis in original). 

39. In October 2024, JP Morgan Securities deposited in a designated account 

$100,000,000 in connection with this resolution.  JP Morgan Securities will distribute 

$90,000,000 of these funds to Conduit investors as a voluntary payment and the remaining 

$10,000,000 as a civil penalty to be distributed from a Fair Fund, in accordance with the 

calculations and methodology described in Section IV.C.  JP Morgan Securities has further 

agreed to provide to the Commission staff the items described in Subsections IV.C(4), IV.C(6), 

and IV.C(10) for the $90,000,000 voluntary payment. 

IV. 

 In view of the foregoing, the Commission deems it appropriate, and in the public interest, 

to impose the sanctions agreed to in Respondent JP Morgan Securities’ Offer. 

 Accordingly, pursuant to Section 8A of the Securities Act, Sections 15(b)(4) and 21C of 

the Exchange Act, and Section 203(e) of the Advisers Act, it is hereby ORDERED that: 

A. Respondent JP Morgan Securities cease and desist from committing or causing any 

violations and any future violations of Sections 17(a)(2) and (3) of the Securities Act.   

B. Respondent JP Morgan Securities is censured. 



 
9 

C. Respondent JP Morgan Securities shall pay a civil money penalty in the amount of 

$10,000,000 as follows: 

(1) Pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, as amended, 

a Fair Fund is created for the penalties, described above, for distribution to 

Conduit investors who suffered declines in the value of their Shares during 

the Relevant Period.  Amounts ordered to be paid as civil money penalties 

pursuant to this Order shall be treated as penalties paid to the government 

for all purposes, including all tax purposes.  To preserve the deterrent effect 

of the civil penalty, Respondent JP Morgan Securities agrees that in any 

Related Investor Action, it shall not argue that it is entitled to, nor shall it 

benefit by, offset or reduction of any award of compensatory damages by 

the amount of any part of Respondent JP Morgan Securities’ payment of a 

civil penalty in this action (“Penalty Offset”).  If the court in any Related 

Investor Action grants such a Penalty Offset, Respondent JP Morgan 

Securities agrees that it shall, within 30 days after entry of a final order 

granting the Penalty Offset, notify the Commission’s counsel in this action 

and pay the amount of the Penalty Offset to the Securities and Exchange 

Commission.  Such a payment shall not be deemed an additional civil 

penalty and shall not be deemed to change the amount of the civil penalty 

imposed in this proceeding.  For purposes of this paragraph, a “Related 

Investor Action” means a private damages action brought against 

Respondent JP Morgan Securities by or on behalf of one or more investors 

based on substantially the same facts as alleged in the Order instituted by 

the Commission in this proceeding. 

(2) On or before October 30, 2024, Respondent JP Morgan Securities deposited 

the Fair Fund and the funds for a voluntary repayment into a designated 

account at a financial institution not unacceptable to the Commission staff 

and Respondent JP Morgan Securities provided evidence of such deposit in 

a form acceptable to the Commission staff.  The account holding the assets 

of the Fair Fund shall bear the name and the taxpayer identification number 

of the Fair Fund.    

(3) Respondent JP Morgan Securities shall be responsible for administering the 

Fair Fund and may hire a professional at its own cost to assist it in the 

administration of the distribution.  The costs and expenses of administering 

the Fair Fund, including any such professional services, shall be borne by 

Respondent JP Morgan Securities and shall not be paid out of the Fair Fund.            

(4) Respondent JP Morgan Securities shall distribute from the Fair Fund to 

each affected Conduit investor account an amount pursuant to a 

disbursement calculation (the “Calculation”) that will be submitted to, 

reviewed, and approved by the Commission staff in accordance with 

Subsection IV.C(5).  The Calculation shall be subject to a de minimis 

threshold of $10 for any former Conduit investor account; otherwise, no 



 
10 

such threshold shall apply.  JP Morgan Securities has also agreed that the 

Calculation will include the voluntary payment described in Subsection 

III.39.  No portion of the Fair Fund shall be paid to any affected Conduit 

investor account in which Respondent JP Morgan Securities, or any of its 

current or former officers or directors, has a financial interest.2 

(5) Respondent JP Morgan Securities shall, within thirty (30) days from the 

date of this Order, submit the Calculation to the Commission staff for 

review and approval.  At or around the time of submission of the proposed 

Calculation to the staff, Respondent JP Morgan Securities shall make itself 

available, and shall require any third-parties or professionals retained by 

Respondent JP Morgan Securities to assist in formulating the methodology 

for its Calculation and/or administration of the distribution to be available, 

for a conference call with the Commission staff to explain the methodology 

used in preparing the proposed Calculation and its implementation, and to 

provide the staff with an opportunity to ask questions.  Respondent JP 

Morgan Securities also shall provide the Commission staff such additional 

information and supporting documentation as the Commission staff may 

request for the purpose of its review.  In the event of one or more objections 

by the Commission staff to Respondent JP Morgan Securities’ proposed 

Calculation or any of its information or supporting documentation, 

Respondent JP Morgan Securities shall submit a revised Calculation for the 

review and approval of the Commission staff or additional information or 

supporting documentation within ten (10) days of the date that the 

Commission staff notifies Respondent JP Morgan Securities of the 

objection.  The revised Calculation shall be subject to all of the provisions 

of Subsection IV.C(5).  

(6) Respondent JP Morgan Securities shall, within fourteen (14) days of the 

written approval of the Calculation by the Commission staff, submit a 

payment file (the “Payment File”) for review and acceptance by the 

Commission staff demonstrating the application of the methodology to each 

affected investor.  The Payment File should identify, at a minimum, (1) the 

name of each affected investor; (2) the net amount of the payment to be 

made, less any tax withholding; and (3) the amount of any de minimis 

threshold to be applied.  JP Morgan Securities has also agreed that the 

Payment File will identify, at a minimum, the items listed in the preceding 

sentence for the voluntary payment described in Section III.39.  Respondent 

JP Morgan Securities shall exclude from the Payment File all payments to 

payees that appear on the U.S. Treasury Department Specially Designated 

Nationals List.   

                                                 
2  For purposes of this Subsection IV.C(4), an “officer” means anyone listed as an executive 

officer on J.P. Morgan Securities’ Form BD and/or Form ADV. 



 
11 

(7) Respondent JP Morgan Securities shall disburse all amounts payable to 

affected Conduit investors from the Fair Fund within ninety (90) days of the 

date the Commission staff accepts the Payment File, unless such time period 

is extended as provided in Paragraph (11) of this Subsection IV.C.  

Respondent JP Morgan Securities shall notify the Commission staff of the 

date(s) and the amount paid in the distribution. 

(8) If Respondent JP Morgan Securities is unable to distribute or return any 

portion of the Fair Fund for any reason, including an inability to locate an 

affected Conduit investor account or a beneficial owner of an affected 

investor account or any other factors beyond Respondent JP Morgan 

Securities’ control, Respondent JP Morgan Securities shall transfer any such 

undistributed funds to the Commission for transmittal to the United States 

Treasury in accordance with Section 21F(g)(3) of the Exchange Act once 

the distribution of funds is complete and before the final accounting 

provided for in Paragraph (10) of this Subsection IV.C is submitted to the 

Commission staff.  Payment must be made in one of the following ways:   

a. Respondent may transmit payment electronically to the 

Commission, which will provide detailed ACH transfer/Fedwire 

instructions upon request;  

b. Respondent may make direct payment from a bank account via 

Pay.gov through the SEC website at 

http://www.sec.gov/about/offices/ofm.htm; or  

c. Respondent may pay by certified check, bank cashier’s check, or 

United States postal money order, made payable to the 

Securities and Exchange Commission and hand-delivered or 

mailed to:  

Enterprise Services Center 

Accounts Receivable Branch 

HQ Bldg., Room 181, AMZ-341 

6500 South MacArthur Boulevard 

Oklahoma City, OK 73169 

 

Payments by check or money order must be accompanied by a cover letter 

identifying JP Morgan Securities as a Respondent in these proceedings, and 

the file number of these proceedings; a copy of the cover letter and check or 

money order must be sent to Lee A. Greenwood, Assistant Regional 

Director, Asset Management Unit, Division of Enforcement, Securities and 

Exchange Commission, 100 Pearl Street, Suite 20-100, New York, New 

York, 10004, or such other address as the Commission staff may provide.   

http://www.sec.gov/about/offices/ofm.htm


 
12 

(9) A Fair Fund is a Qualified Settlement Fund (“QSF”) under Section 468B(g) 

of the Internal Revenue Code (“IRC”), 26 U.S.C. §§ 1.468B.1-1.468B.5. 

Respondent JP Morgan Securities agrees to be responsible for all tax 

compliance responsibilities associated with the Fair Fund’s status as a 

QSF.  These responsibilities involve reporting and paying requirements of 

the Fund, including but not limited to: (1) tax returns for the Fair Fund; (2) 

information return reporting regarding the payments to investors, as 

required by applicable codes and regulations; and (3) obligations resulting 

from compliance with the Foreign Account Tax Compliance Act (FATCA).  

Respondent JP Morgan Securities may retain any professional services 

necessary.  The costs and expenses of tax compliance, including any such 

professional services, shall be borne by Respondent JP Morgan Securities 

and shall not be paid out of the Distribution Fund.  

(10) Within one hundred fifty (150) days after Respondent JP Morgan Securities 

completes the disbursement of all amounts payable to affected investors 

from the Fair Fund, Respondent JP Morgan Securities shall return all 

undisbursed funds from the Fair Fund to the Commission pursuant to the 

instructions set forth in Subsection IV.C(8).  Respondent JP Morgan 

Securities shall then submit to the Commission staff a final accounting and 

certification of the disposition of the Fair Fund for Commission approval, 

which final accounting and certification shall include, but not be limited 

to:  (1) the amount paid to each payee, with the reasonable interest amount, 

if any, reported separately; (2) the date of each payment; (3) the check 

number or other identifier of the money transferred; (4) the amount of any 

returned payment and the date received; (5) a description of the efforts to 

locate a prospective payee whose payment was returned or to whom 

payment was not made for any reason; (6) the total amount, if any, to be 

forwarded to the Commission for transfer to the United States Treasury; and 

(7) an affirmation that Respondent JP Morgan Securities has made 

payments from the Distribution Fund to affected investors in accordance 

with the Calculation approved by the Commission staff.  JP Morgan 

Securities has also agreed that this final accounting will identify the items 

listed in the preceding sentence for the voluntary payment described in 

Subsection III.39.  The final accounting and certification shall be submitted 

under a cover letter that identifies JP Morgan Securities and the file number 

of these proceedings to Lee A. Greenwood, Assistant Regional Director, 

Asset Management Unit, Division of Enforcement, Securities and Exchange 

Commission, 100 Pearl Street, Suite 20-100, New York, New York, 

10004.  Respondent JP Morgan Securities shall provide any and all 

supporting documentation for the accounting and certification to the 

Commission staff upon its request and shall cooperate with any additional 

requests by the Commission staff in connection with the accounting and 

certification.  



 
13 

(11) The Commission staff may extend any of the procedural dates set forth in 

this Subsection IV.C for good cause shown.  Deadlines for dates relating to 

the Fair Fund shall be counted in calendar days, except if the last day falls 

on a weekend or federal holiday, the next business day shall be considered 

the last day.  

 By the Commission. 

 

Vanessa A. Countryman 

         Secretary 

 


	UNITED STATES OF AMERICA
	Respondent
	Other Relevant Entities
	JP Morgan’s Conduit Program