In re J.P. Morgan Investment

  
 UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
INVESTMENT ADVISERS ACT OF 1940 
Release No. 6761 / October 31, 2024 
 
INVESTMENT COMPANY ACT OF 1940 
Release No. 35374 / October 31, 2024 
 
ADMINISTRATIVE PROCEEDING 
File No. 3 22282 
 
In the Matter of 
 
J.P. Morgan Investment 
  Management Inc.,  
 
Respondent. 
 
 
 
 
 
ORDER INSTITUTING ADMINISTRATIVE 
AND CEASE-AND-DESIST PROCEEDINGS, 
PURSUANT TO SECTIONS 203(e) AND 
203(k) OF THE INVESTMENT ADVISERS 
ACT OF 1940 AND SECTION 9(f) OF THE 
INVESTMENT COMPANY 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 public administrative and cease-and-desist proceedings be, and hereby are, 
instituted pursuant to Sections 203(e) and 203(k) of the Investment Advisers Act of 1940 
(“Advisers Act”), and Section 9(f) of the Investment Company Act of 1940 (“Investment Company 
Act”) against J.P. Morgan Investment Management Inc. (“Respondent” or “JP Morgan IM”).   
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 
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 Sections 203(e) and 203(k) of the 
Investment Advisers Act of 1940 and Section 9(f) of the Investment Company Act of 1940, 
Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order (“Order”), as 
set forth below. 
 

 
2 
III. 
 On the basis of this Order and Respondent’s Offer, the Commission finds
1
 that  
Summary 
1. From July 2019 until March 2021 (“Relevant Period”), JP Morgan IM, a registered 
investment adviser, engaged in or caused 65 prohibited principal trades with a combined notional 
value of approximately $8.2 billion and which included approximately $22,000 in spreads.  To 
conduct these trades, a JP Morgan IM portfolio manager directed an unaffiliated broker-dealer to 
buy commercial paper or similar short-term fixed income securities from an affiliate, J.P. Morgan 
Securities LLC (“JP Morgan Securities”).  JP Morgan IM then purchased the paper from the broker-
dealer on behalf of one of its clients.  Fifteen of these trades involved money market funds that were 
registered investment companies (“RICs”) advised by JP Morgan IM, despite the prohibition in 
Section 17(a)(1) of the Investment Company Act.  Though the Commission granted JP Morgan IM 
exemptive relief years before the Relevant Period that permits JP Morgan IM to trade with JP 
Morgan Securities provided that certain conditions were met, JP Morgan IM did not comply with 
those conditions for any of these 15 trades involving RICs.  As a result, JP Morgan IM caused JP 
Morgan Securities to violate Section 17(a)(1) of the Investment Company Act.  The remaining 50 
trades involved five non-RIC JP Morgan IM clients, which included pooled investment vehicles and 
an institutional client.  Because JP Morgan IM neither provided the required client disclosures nor 
obtained client consent for any of these 50 trades, JP Morgan IM violated Section 206(3) of the 
Advisers Act. 
2. In addition, JP Morgan IM failed to adopt and implement adequate policies and 
procedures to prevent unlawful principal trades by its investment professionals during the Relevant 
Period and until March 2024.  During this period, JP Morgan IM approved certain broker-dealers 
as counterparties, some which also had direct electronic access to the commercial paper offerings 
of JP Morgan Securities.  However, despite the exemptive relief,  JP Morgan IM did not have 
reasonably designed policies and procedures to prevent its personnel from conducting prohibited 
principal trades.  As a result, JP Morgan IM violated Section 206(4) of the Advisers Act and Rule 
206(4)-7 thereunder, and caused its RIC clients to violate Rule 38a-1 of the Investment Company 
Act. 
Respondent 
3. JP Morgan IM, incorporated in Delaware, has been an investment adviser 
registered with the Commission since 1984.  JP Morgan IM’s principal place of business is in New 
York, New York.  JP Morgan IM has regulatory assets under management of $2.5 trillion as of 
December 31, 2023.  Among other things, JP Morgan IM provides advisory services to registered 
investment companies that operate as U.S. money market mutual funds, foreign money market 
funds, and institutional clients.  JP Morgan IM is a wholly owned subsidiary of JPMorgan Chase & 
                                                 
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 
Co. (“JP Morgan”), a global financial services firm incorporated in Delaware and headquartered in 
New York, New York.  
Other Relevant Entity 
4. JP Morgan Securities is a Delaware limited liability company with its principal 
place of business in New York, New York.  A wholly owned subsidiary of JP Morgan, JP Morgan 
Securities 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.   
The Investment Company Act Principal Trade Prohibitions and  
JP Morgan IM’s Exemptive Order  
5. Section 17(a)(1) of the Investment Company Act generally prohibits any affiliated 
person of a registered investment company or any affiliated person of such affiliated person, acting 
as principal, from knowingly selling a security to the registered investment company—referred to 
here as principal trades—unless the person first obtains an exemptive order from the Commission 
under Section 17(b).  Under Section 17(b), an investment adviser “may file with the Commission 
an application for an order exempting a proposed transaction of the applicant from one or more 
provisions” of Section 17.  The Commission may issue such exemptive orders when three 
enumerated conditions are met: (a) the terms of the proposed transaction, including the 
consideration to be paid or received, are reasonable and fair and do not involve overreaching on the 
part of any person concerned; (b) the proposed transaction is consistent with the policy of each 
registered investment company concerned, as recited in its registration statement and reports; and 
(c) the proposed transaction is consistent with the general purposes of Section 17. 
 
6. Section 48(a) of the Investment Company Act prohibits “any person, directly or 
indirectly, to cause to be done any act or thing through or by means of any other person which it 
would be unlawful for such person to do” under the Investment Company Act or the rules 
promulgated thereunder.  The interpositioning of a broker-dealer in a transaction that, in absence of 
such party, otherwise represents a principal trade does not remove the prohibition of such 
transactions under Section 17(a).  
7. In 2002, JP Morgan IM obtained exemptive relief pursuant to Sections 6(c) and 
17(b) of the Investment Company Act.  See J.P. Morgan Fleming Asset Management (USA), Inc., 
Investment Company Act Rel. No. 25574 (May 15, 2002) (“Exemptive Order”).  The relief granted 
by the Exemptive Order is subject to conditions, including, but not limited to: (a) JP Morgan IM 
must make a determination “that the price available from [JP Morgan Securities] is at least as 
favorable as that available from other sources”; (b) preparation of guidelines for personnel to 
follow the requirements of the Exemptive Order; (c) periodic compliance monitoring of such 
transactions; and (d) provision, at least on an annual basis, of information to the RIC’s board 
concerning such transactions. 

 
4 
JP Morgan Securities Grants Access to its Securities Offerings to Broker-Dealer A 
8. During the Relevant Period, JP Morgan Securities’ business included dealing 
certain securities for sale, including issuances of commercial paper.  Commercial paper is a form 
of unsecured promissory note issued by corporations and other vehicles to fund short-term 
liabilities that is sold to a purchaser at a discount to par.  The purchaser receives the full value of 
the commercial paper when it matures, which can be as short as one day or up to 397 days.  
Commercial paper can also be sold on an interest at maturity basis.  Broker-dealers play a role in 
this market by facilitating commercial paper issuances and secondary trading.   
9. With respect to certain broker-dealer counterparties, JP Morgan Securities provided 
direct electronic access to its then-current offers of commercial paper, including both the CUSIPs 
and amount of the securities available for sale, to other broker-dealer counterparties.  This access to 
its commercial paper offers allowed these broker-dealers to acquire and resell the securities JP 
Morgan Securities offers to their respective customers.  Such arrangements allowed JP Morgan 
Securities to more widely distribute its offers of securities, such as new commercial paper 
issuances, to a greater number of buyers.  At various times during the Relevant Period, JP Morgan 
Securities entered into such arrangements with respect to its commercial paper offers with certain 
broker-dealers, including Broker-Dealer A.     
10. In March 2019, JP Morgan Securities provided Broker-Dealer A with direct 
electronic access to its offers of commercial paper issuances as well as other securities.    
11. The direct electronic access that JP Morgan Securities granted to broker-dealers like 
Broker-Dealer A allowed traders at these broker-dealers to view JP Morgan Securities’ offers of 
commercial paper and to purchase any available security.  Once acquired, broker-dealers like 
Broker-Dealer A could resell the security to any investor counterparty and earn a spread. 
JP Morgan IM Places Broker-Dealer A on its Approved List 
12. JP Morgan IM’s Global Liquidity Group (“Global Liquidity”) purchased and sold 
various short-term fixed income securities, such as commercial paper, for registered money market 
mutual funds, foreign money market funds, and institutional clients.  JP Morgan IM maintained an 
approved list of broker-dealers from which the portfolio managers and traders in Global Liquidity 
could buy securities, on behalf of JP Morgan IM clients.  Broker-Dealer A was on the approved list 
beginning in December 2012. 
13. Through a conversation with a Broker-Dealer A trader around the summer of 2019, 
one Global Liquidity portfolio manager (“PM A”) learned that Broker-Dealer A had direct access 
to JP Morgan Securities’ offers of commercial paper issuances.  After the Commission issued the 
Exemptive Order, JP Morgan IM authorized certain Global Liquidity investment professionals to 
view securities that were being offered for sale by JP Morgan Securities on electronic trading 
platforms.  These professionals, which included PM A, could both trade directly with JP Morgan 
Securities as well as observe the offered prices for securities, comparing them against other broker-
dealers whose offers they were permitted to access.      

 
5 
JP Morgan IM’s Prohibited Principal Trades with RIC Clients 
14. During the Relevant Period, Global Liquidity traders, including PM A, purchased 
commercial paper from Broker-Dealer A on behalf of JP Morgan IM clients, including U.S. money 
market funds registered as RICs.  In 15 such transactions by PM A, involving nearly $2.2 billion in 
notional value, Broker-Dealer A acquired the securities from JP Morgan Securities through 
Broker-Dealer A’s direct access to JP Morgan Securities’ offers and then sold the securities to JP 
Morgan IM RIC clients later the same day.  Broker-Dealer A earned commissions on these 
principal trades in the form of spreads totaling approximately $10,300.   
15. In communications with Broker-Dealer A, PM A indicated that the securities PM A 
was interested in purchasing for JP Morgan IM clients were held at JP Morgan Securities.  
16. JP Morgan IM failed to comply with the conditions set forth in the Exemptive 
Order for these 15 principal trades because, among other things, no favorable price determination 
was made concerning the transactions and the transactions were not reported to the RICs’ board of 
trustees.    
JP Morgan IM’s Prohibited Principal Trades with Non-RIC Clients 
17. Section 206(3) of the Advisers Act prohibits an investment adviser, directly or 
indirectly, “[to] knowingly . . . sell any security to or purchase any security from a client, . . . 
without disclosing to such client in writing before the completion of such transaction the capacity 
in which he is acting and obtaining the consent of the client to such transaction.”  
18. During the Relevant Period, JP Morgan IM also engaged in principal trades with 
non-RIC clients that were structured in the same manner as the principal trades involving its RIC 
clients that are described in the prior subsection.  Specifically, JP Morgan IM engaged in 50 such 
transactions with five non-RIC clients, which included a pooled retirement investment vehicle, an 
institutional client, and foreign funds.  These trades were also executed by PM A using Broker-
Dealer A.  The notional value of those trades was approximately $6 billion and accrued $11,200 in 
spreads for Broker-Dealer A. 
19. JP Morgan IM did not provide any prior written disclosure to, or receive consents 
from, its clients who were parties to any of these 50 prohibited principal trades. 
JP Morgan IM Failed to Adopt and Implement, and Caused Its RIC Clients to Fail to   
Implement, Reasonably Designed Policies and Procedures 
20. JP Morgan IM failed to adopt and implement, and caused its RIC clients to fail to 
implement, reasonably designed policies and procedures to address the Section 17(a) prohibition 
on principal trades involving RICs and compliance with the Exemptive Order, as well as principal 
trades under Section 206(3) of the Advisers Act.  Although JP Morgan IM obtained the Exemptive 
Order and had policies and procedures concerning principal trades, it did not have reasonably 
designed policies and procedures to prevent its personnel from conducting prohibited principal 
trades.  For example, JP Morgan IM failed to  provide adequate guidance and training to its 
investment professionals concerning such transactions.     

 
6 
Violations 
21. As a result of the conduct described above, JP Morgan IM caused JP Morgan 
Securities to violate Section 17(a)(1) of the Investment Company Act, which makes it unlawful for 
any affiliated person or promoter of or principal underwriter for a registered investment company, 
or any affiliated person of such a person, promoter, or principal underwriter, acting as principal 
knowingly to sell any security or other property to such registered investment company or to any 
company controlled by such registered investment company or from any company controlled by 
such registered investment company, any security or other property, unless the affiliate obtains an 
exemptive order under Section 17(b) of the Investment Company Act.  Although JP Morgan IM 
obtained the Exemptive Order, it did not comply with it. 
22. As a result of the conduct described above, JP Morgan IM willfully violated 
Section 206(3) of the Advisers Act, which prohibits an investment adviser, acting as principal for 
its own account, from knowingly selling securities to or purchasing securities from the adviser’s 
clients without disclosing to such clients in writing before the completion of such transactions in 
the capacity in which the adviser is acting and obtaining the consent of the clients to such 
transactions.
2
  Here, trades occurred between JP Morgan Securities, an affiliate under common 
control with JP Morgan IM which dealt commercial paper on behalf of certain issuers, and other 
non-RIC advisory clients of JP Morgan IM.  Therefore, JP Morgan IM was acting as principal for 
trades involving those clients.  However, JP Morgan IM did not provide prior notification or obtain 
prior consent from the other advisory clients and, therefore, violated Section 206(3) of the Advisers 
Act.  
23. As a result of the conduct described above, JP Morgan IM willfully violated 
Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder, which require, among other 
things, that registered investment advisers adopt and implement written policies and procedures 
reasonably designed to prevent violations, by the investment adviser and its supervised persons, of 
the Advisers Act and the rules thereunder. 
24. As a result of the conduct described above, JP Morgan IM caused the RICs to 
violate Rule 38a-1 under the Investment Company Act, which requires a registered investment 
company to adopt and implement written policies and procedures reasonably designed to prevent 
violations of the federal securities laws. 
JP Morgan IM’s Cooperation and Remedial Efforts 
25. In determining to accept the Offer, the Commission considered remedial acts 
promptly undertaken by Respondent and cooperation afforded the Commission staff.  Upon 
                                                 
2
  “Willfully,” for purposes of imposing relief under Section 203(e) of the Advisers Act, 
“‘means no more than that the person charged with the duty knows what he is doing.’”  
Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000) (quoting Hughes v. SEC, 174 F.2d 969, 
977 (D.C. Cir. 1949)).  There is no requirement that the actor “also be aware that he is violating 
one of the Rules or Acts.”  Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 1965). 

 
7 
learning about the principal trades, JP Morgan IM notified Enforcement staff, promptly provided 
documents, communications, and other information on an ongoing, voluntary basis, made 
presentations and written submissions to assist the staff, provided additional training to Global 
Liquidity investment professionals, and updated its policies and procedures. 
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 IM’s Offer. 
 Accordingly, pursuant to Sections 203(e) and 203(k) of the Advisers Act, and Section 9(f) 
of the Investment Company Act, it is hereby ORDERED that: 
 A. Respondent JP Morgan IM cease and desist from committing or causing any 
violations and any future violations of Section 17(a)(1) of the Investment Company Act and Rule 
38a-1 thereunder, and Sections 206(3) and 206(4) of the Advisers Act and Rule 206(4)-7 
thereunder.   
B. Respondent JP Morgan IM is censured.    
C. JP Morgan IM shall, within twenty-one days of the entry of this Order, pay a civil 
money penalty in the amount of $1,000,000 to the Securities and Exchange Commission for 
transfer to the general fund of the United States Treasury, subject to Exchange Act Section 
21F(g)(3). If timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. § 
3717..   
Payment must be made in one of the following ways:   
(1) Respondent may transmit payment electronically to the Commission, which 
will provide detailed ACH transfer/Fedwire instructions upon request;  
(2) 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  
(3) 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 IM 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 

 
8 
Regional Director, Division of Enforcement, Securities and Exchange Commission, 100 Pearl 
Street, Suite 20-100, New York, NY 10004.   
 D.  Regardless of whether the Commission in its discretion orders the creation of a 
Fair Fund for the penalty ordered in this proceeding, the amount ordered to be paid as a civil 
money penalty pursuant to this Order shall be treated as a penalty paid to the government for all 
purposes, including all tax purposes.  To preserve the deterrent effect of the civil penalty, 
Respondent 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’s payment of a civil penalty in this action (“Penalty Offset”).  If the court in 
any Related Investor Action grants such a Penalty Offset, Respondent 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 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. 
 By the Commission. 
 
Vanessa A. Countryman 
        Secretary 

UNITED STATES OF AMERICA 

 Before the 

 SECURITIES AND EXCHANGE COMMISSION 

 

INVESTMENT ADVISERS ACT OF 1940 

Release No. 6761 / October 31, 2024 

 

INVESTMENT COMPANY ACT OF 1940 

Release No. 35374 / October 31, 2024 

 

ADMINISTRATIVE PROCEEDING 

File No. 3 22282 

 

In the Matter of 

 

J.P. Morgan Investment 

  Management Inc.,  

 

Respondent. 

 

 

 

 

 

ORDER INSTITUTING ADMINISTRATIVE 

AND CEASE-AND-DESIST PROCEEDINGS, 

PURSUANT TO SECTIONS 203(e) AND 

203(k) OF THE INVESTMENT ADVISERS 

ACT OF 1940 AND SECTION 9(f) OF THE 

INVESTMENT COMPANY 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 public administrative and cease-and-desist proceedings be, and hereby are, 

instituted pursuant to Sections 203(e) and 203(k) of the Investment Advisers Act of 1940 

(“Advisers Act”), and Section 9(f) of the Investment Company Act of 1940 (“Investment Company 

Act”) against J.P. Morgan Investment Management Inc. (“Respondent” or “JP Morgan IM”).   

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 

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 Sections 203(e) and 203(k) of the 

Investment Advisers Act of 1940 and Section 9(f) of the Investment Company Act of 1940, 

Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order (“Order”), as 

set forth below. 

 



 
2 

III. 

 On the basis of this Order and Respondent’s Offer, the Commission finds1 that  

Summary 

1. From July 2019 until March 2021 (“Relevant Period”), JP Morgan IM, a registered 

investment adviser, engaged in or caused 65 prohibited principal trades with a combined notional 

value of approximately $8.2 billion and which included approximately $22,000 in spreads.  To 

conduct these trades, a JP Morgan IM portfolio manager directed an unaffiliated broker-dealer to 

buy commercial paper or similar short-term fixed income securities from an affiliate, J.P. Morgan 

Securities LLC (“JP Morgan Securities”).  JP Morgan IM then purchased the paper from the broker-

dealer on behalf of one of its clients.  Fifteen of these trades involved money market funds that were 

registered investment companies (“RICs”) advised by JP Morgan IM, despite the prohibition in 

Section 17(a)(1) of the Investment Company Act.  Though the Commission granted JP Morgan IM 

exemptive relief years before the Relevant Period that permits JP Morgan IM to trade with JP 

Morgan Securities provided that certain conditions were met, JP Morgan IM did not comply with 

those conditions for any of these 15 trades involving RICs.  As a result, JP Morgan IM caused JP 

Morgan Securities to violate Section 17(a)(1) of the Investment Company Act.  The remaining 50 

trades involved five non-RIC JP Morgan IM clients, which included pooled investment vehicles and 

an institutional client.  Because JP Morgan IM neither provided the required client disclosures nor 

obtained client consent for any of these 50 trades, JP Morgan IM violated Section 206(3) of the 

Advisers Act. 

2. In addition, JP Morgan IM failed to adopt and implement adequate policies and 

procedures to prevent unlawful principal trades by its investment professionals during the Relevant 

Period and until March 2024.  During this period, JP Morgan IM approved certain broker-dealers 

as counterparties, some which also had direct electronic access to the commercial paper offerings 

of JP Morgan Securities.  However, despite the exemptive relief,  JP Morgan IM did not have 

reasonably designed policies and procedures to prevent its personnel from conducting prohibited 

principal trades.  As a result, JP Morgan IM violated Section 206(4) of the Advisers Act and Rule 

206(4)-7 thereunder, and caused its RIC clients to violate Rule 38a-1 of the Investment Company 

Act. 

Respondent 

3. JP Morgan IM, incorporated in Delaware, has been an investment adviser 

registered with the Commission since 1984.  JP Morgan IM’s principal place of business is in New 

York, New York.  JP Morgan IM has regulatory assets under management of $2.5 trillion as of 

December 31, 2023.  Among other things, JP Morgan IM provides advisory services to registered 

investment companies that operate as U.S. money market mutual funds, foreign money market 

funds, and institutional clients.  JP Morgan IM is a wholly owned subsidiary of JPMorgan Chase & 

                                                 
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 

Co. (“JP Morgan”), a global financial services firm incorporated in Delaware and headquartered in 

New York, New York.  

Other Relevant Entity 

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

place of business in New York, New York.  A wholly owned subsidiary of JP Morgan, JP Morgan 

Securities 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.   

The Investment Company Act Principal Trade Prohibitions and  

JP Morgan IM’s Exemptive Order  

5. Section 17(a)(1) of the Investment Company Act generally prohibits any affiliated 

person of a registered investment company or any affiliated person of such affiliated person, acting 

as principal, from knowingly selling a security to the registered investment company—referred to 

here as principal trades—unless the person first obtains an exemptive order from the Commission 

under Section 17(b).  Under Section 17(b), an investment adviser “may file with the Commission 

an application for an order exempting a proposed transaction of the applicant from one or more 

provisions” of Section 17.  The Commission may issue such exemptive orders when three 

enumerated conditions are met: (a) the terms of the proposed transaction, including the 

consideration to be paid or received, are reasonable and fair and do not involve overreaching on the 

part of any person concerned; (b) the proposed transaction is consistent with the policy of each 

registered investment company concerned, as recited in its registration statement and reports; and 

(c) the proposed transaction is consistent with the general purposes of Section 17. 

 

6. Section 48(a) of the Investment Company Act prohibits “any person, directly or 

indirectly, to cause to be done any act or thing through or by means of any other person which it 

would be unlawful for such person to do” under the Investment Company Act or the rules 

promulgated thereunder.  The interpositioning of a broker-dealer in a transaction that, in absence of 

such party, otherwise represents a principal trade does not remove the prohibition of such 

transactions under Section 17(a).  

7. In 2002, JP Morgan IM obtained exemptive relief pursuant to Sections 6(c) and 

17(b) of the Investment Company Act.  See J.P. Morgan Fleming Asset Management (USA), Inc., 

Investment Company Act Rel. No. 25574 (May 15, 2002) (“Exemptive Order”).  The relief granted 

by the Exemptive Order is subject to conditions, including, but not limited to: (a) JP Morgan IM 

must make a determination “that the price available from [JP Morgan Securities] is at least as 

favorable as that available from other sources”; (b) preparation of guidelines for personnel to 

follow the requirements of the Exemptive Order; (c) periodic compliance monitoring of such 

transactions; and (d) provision, at least on an annual basis, of information to the RIC’s board 

concerning such transactions. 



 
4 

JP Morgan Securities Grants Access to its Securities Offerings to Broker-Dealer A 

8. During the Relevant Period, JP Morgan Securities’ business included dealing 

certain securities for sale, including issuances of commercial paper.  Commercial paper is a form 

of unsecured promissory note issued by corporations and other vehicles to fund short-term 

liabilities that is sold to a purchaser at a discount to par.  The purchaser receives the full value of 

the commercial paper when it matures, which can be as short as one day or up to 397 days.  

Commercial paper can also be sold on an interest at maturity basis.  Broker-dealers play a role in 

this market by facilitating commercial paper issuances and secondary trading.   

9. With respect to certain broker-dealer counterparties, JP Morgan Securities provided 

direct electronic access to its then-current offers of commercial paper, including both the CUSIPs 

and amount of the securities available for sale, to other broker-dealer counterparties.  This access to 

its commercial paper offers allowed these broker-dealers to acquire and resell the securities JP 

Morgan Securities offers to their respective customers.  Such arrangements allowed JP Morgan 

Securities to more widely distribute its offers of securities, such as new commercial paper 

issuances, to a greater number of buyers.  At various times during the Relevant Period, JP Morgan 

Securities entered into such arrangements with respect to its commercial paper offers with certain 

broker-dealers, including Broker-Dealer A.     

10. In March 2019, JP Morgan Securities provided Broker-Dealer A with direct 

electronic access to its offers of commercial paper issuances as well as other securities.    

11. The direct electronic access that JP Morgan Securities granted to broker-dealers like 

Broker-Dealer A allowed traders at these broker-dealers to view JP Morgan Securities’ offers of 

commercial paper and to purchase any available security.  Once acquired, broker-dealers like 

Broker-Dealer A could resell the security to any investor counterparty and earn a spread. 

JP Morgan IM Places Broker-Dealer A on its Approved List 

12. JP Morgan IM’s Global Liquidity Group (“Global Liquidity”) purchased and sold 

various short-term fixed income securities, such as commercial paper, for registered money market 

mutual funds, foreign money market funds, and institutional clients.  JP Morgan IM maintained an 

approved list of broker-dealers from which the portfolio managers and traders in Global Liquidity 

could buy securities, on behalf of JP Morgan IM clients.  Broker-Dealer A was on the approved list 

beginning in December 2012. 

13. Through a conversation with a Broker-Dealer A trader around the summer of 2019, 

one Global Liquidity portfolio manager (“PM A”) learned that Broker-Dealer A had direct access 

to JP Morgan Securities’ offers of commercial paper issuances.  After the Commission issued the 

Exemptive Order, JP Morgan IM authorized certain Global Liquidity investment professionals to 

view securities that were being offered for sale by JP Morgan Securities on electronic trading 

platforms.  These professionals, which included PM A, could both trade directly with JP Morgan 

Securities as well as observe the offered prices for securities, comparing them against other broker-

dealers whose offers they were permitted to access.      



 
5 

JP Morgan IM’s Prohibited Principal Trades with RIC Clients 

14. During the Relevant Period, Global Liquidity traders, including PM A, purchased 

commercial paper from Broker-Dealer A on behalf of JP Morgan IM clients, including U.S. money 

market funds registered as RICs.  In 15 such transactions by PM A, involving nearly $2.2 billion in 

notional value, Broker-Dealer A acquired the securities from JP Morgan Securities through 

Broker-Dealer A’s direct access to JP Morgan Securities’ offers and then sold the securities to JP 

Morgan IM RIC clients later the same day.  Broker-Dealer A earned commissions on these 

principal trades in the form of spreads totaling approximately $10,300.   

15. In communications with Broker-Dealer A, PM A indicated that the securities PM A 

was interested in purchasing for JP Morgan IM clients were held at JP Morgan Securities.  

16. JP Morgan IM failed to comply with the conditions set forth in the Exemptive 

Order for these 15 principal trades because, among other things, no favorable price determination 

was made concerning the transactions and the transactions were not reported to the RICs’ board of 

trustees.    

JP Morgan IM’s Prohibited Principal Trades with Non-RIC Clients 

17. Section 206(3) of the Advisers Act prohibits an investment adviser, directly or 

indirectly, “[to] knowingly . . . sell any security to or purchase any security from a client, . . . 

without disclosing to such client in writing before the completion of such transaction the capacity 

in which he is acting and obtaining the consent of the client to such transaction.”  

18. During the Relevant Period, JP Morgan IM also engaged in principal trades with 

non-RIC clients that were structured in the same manner as the principal trades involving its RIC 

clients that are described in the prior subsection.  Specifically, JP Morgan IM engaged in 50 such 

transactions with five non-RIC clients, which included a pooled retirement investment vehicle, an 

institutional client, and foreign funds.  These trades were also executed by PM A using Broker-

Dealer A.  The notional value of those trades was approximately $6 billion and accrued $11,200 in 

spreads for Broker-Dealer A. 

19. JP Morgan IM did not provide any prior written disclosure to, or receive consents 

from, its clients who were parties to any of these 50 prohibited principal trades. 

JP Morgan IM Failed to Adopt and Implement, and Caused Its RIC Clients to Fail to   

Implement, Reasonably Designed Policies and Procedures 

20. JP Morgan IM failed to adopt and implement, and caused its RIC clients to fail to 

implement, reasonably designed policies and procedures to address the Section 17(a) prohibition 

on principal trades involving RICs and compliance with the Exemptive Order, as well as principal 

trades under Section 206(3) of the Advisers Act.  Although JP Morgan IM obtained the Exemptive 

Order and had policies and procedures concerning principal trades, it did not have reasonably 

designed policies and procedures to prevent its personnel from conducting prohibited principal 

trades.  For example, JP Morgan IM failed to  provide adequate guidance and training to its 

investment professionals concerning such transactions.     



 
6 

Violations 

21. As a result of the conduct described above, JP Morgan IM caused JP Morgan 

Securities to violate Section 17(a)(1) of the Investment Company Act, which makes it unlawful for 

any affiliated person or promoter of or principal underwriter for a registered investment company, 

or any affiliated person of such a person, promoter, or principal underwriter, acting as principal 

knowingly to sell any security or other property to such registered investment company or to any 

company controlled by such registered investment company or from any company controlled by 

such registered investment company, any security or other property, unless the affiliate obtains an 

exemptive order under Section 17(b) of the Investment Company Act.  Although JP Morgan IM 

obtained the Exemptive Order, it did not comply with it. 

22. As a result of the conduct described above, JP Morgan IM willfully violated 

Section 206(3) of the Advisers Act, which prohibits an investment adviser, acting as principal for 

its own account, from knowingly selling securities to or purchasing securities from the adviser’s 

clients without disclosing to such clients in writing before the completion of such transactions in 

the capacity in which the adviser is acting and obtaining the consent of the clients to such 

transactions.2  Here, trades occurred between JP Morgan Securities, an affiliate under common 

control with JP Morgan IM which dealt commercial paper on behalf of certain issuers, and other 

non-RIC advisory clients of JP Morgan IM.  Therefore, JP Morgan IM was acting as principal for 

trades involving those clients.  However, JP Morgan IM did not provide prior notification or obtain 

prior consent from the other advisory clients and, therefore, violated Section 206(3) of the Advisers 

Act.  

23. As a result of the conduct described above, JP Morgan IM willfully violated 

Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder, which require, among other 

things, that registered investment advisers adopt and implement written policies and procedures 

reasonably designed to prevent violations, by the investment adviser and its supervised persons, of 

the Advisers Act and the rules thereunder. 

24. As a result of the conduct described above, JP Morgan IM caused the RICs to 

violate Rule 38a-1 under the Investment Company Act, which requires a registered investment 

company to adopt and implement written policies and procedures reasonably designed to prevent 

violations of the federal securities laws. 

JP Morgan IM’s Cooperation and Remedial Efforts 

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

promptly undertaken by Respondent and cooperation afforded the Commission staff.  Upon 

                                                 
2  “Willfully,” for purposes of imposing relief under Section 203(e) of the Advisers Act, 

“‘means no more than that the person charged with the duty knows what he is doing.’”  

Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000) (quoting Hughes v. SEC, 174 F.2d 969, 

977 (D.C. Cir. 1949)).  There is no requirement that the actor “also be aware that he is violating 

one of the Rules or Acts.”  Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 1965). 



 
7 

learning about the principal trades, JP Morgan IM notified Enforcement staff, promptly provided 

documents, communications, and other information on an ongoing, voluntary basis, made 

presentations and written submissions to assist the staff, provided additional training to Global 

Liquidity investment professionals, and updated its policies and procedures. 

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 IM’s Offer. 

 Accordingly, pursuant to Sections 203(e) and 203(k) of the Advisers Act, and Section 9(f) 

of the Investment Company Act, it is hereby ORDERED that: 

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

violations and any future violations of Section 17(a)(1) of the Investment Company Act and Rule 

38a-1 thereunder, and Sections 206(3) and 206(4) of the Advisers Act and Rule 206(4)-7 

thereunder.   

B. Respondent JP Morgan IM is censured.    

C. JP Morgan IM shall, within twenty-one days of the entry of this Order, pay a civil 

money penalty in the amount of $1,000,000 to the Securities and Exchange Commission for 

transfer to the general fund of the United States Treasury, subject to Exchange Act Section 

21F(g)(3). If timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. § 

3717..   

Payment must be made in one of the following ways:   

(1) Respondent may transmit payment electronically to the Commission, which 

will provide detailed ACH transfer/Fedwire instructions upon request;  

(2) 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  

(3) 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 IM 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 

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


 
8 

Regional Director, Division of Enforcement, Securities and Exchange Commission, 100 Pearl 

Street, Suite 20-100, New York, NY 10004.   

 D.  Regardless of whether the Commission in its discretion orders the creation of a 

Fair Fund for the penalty ordered in this proceeding, the amount ordered to be paid as a civil 

money penalty pursuant to this Order shall be treated as a penalty paid to the government for all 

purposes, including all tax purposes.  To preserve the deterrent effect of the civil penalty, 

Respondent 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’s payment of a civil penalty in this action (“Penalty Offset”).  If the court in 

any Related Investor Action grants such a Penalty Offset, Respondent 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 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. 

 By the Commission. 

 

Vanessa A. Countryman 

        Secretary 


	UNITED STATES OF AMERICA
	Respondent
	JP Morgan Securities Grants Access to its Securities Offerings to Broker-Dealer A