JPMorgan subsidiary fined by SEC for deleting 47 million emails, including some relevant to subpoenas

In an administrative order issued on Thursday, the Securities and Exchange Commission (SEC) imposed a $4 million fine on the broker-dealer subsidiary of JPMorgan Chase. The fine was a result of the accidental deletion of approximately 47 million emails from early 2018.

The SEC order against J.P. Morgan Securities LLC acknowledged that a number of the deleted emails, which were subject to subpoenas in several regulatory investigations, could not be recovered.

According to the order, there were also other deleted emails that could have been relevant to possible future investigations, legal issues, and regulatory inquiries.

Around 8,700 email boxes, including those belonging to approximately 7,500 employees who maintained regular contact with Chase customers, were involved in the accidental deletion of emails that occurred in 2019.

As stated in the order, a significant portion of the deleted emails were classified as “business records required to be retained” under federal securities law.

J.P. Morgan Securities agreed to the SEC sanction, which included a censure of the firm. In preparation for the administrative proceedings concerning the email deletions, the firm had submitted a settlement offer, which was accepted by the SEC.

In addition, the SEC directed the firm to “cease and desist from any future violations” of the securities law that mandates broker-dealers to retain the original copies of all communications for a minimum of three years.

This marks the third instance in which the investment advisor has accepted penalties for its failure to adequately preserve electronic records.

In late 2021, the firm reached an agreement to pay penalties amounting to $125 million for its failure to retain text messages and other electronic communications sent between January 2018 and November 2020.

Back in 2005, the firm faced penalties of $700,000 for its failure to preserve electronic records spanning from mid-1999 to mid-2002.

When approached for comment on the recent sanction, JPMorgan spokeswoman Patricia Wexler declined to provide a statement.

The SEC’s order on Thursday highlighted that JPMorgan initiated a project in 2016 aimed at deleting older communications and documents from its system that were no longer necessary to be retained.

Among the messages targeted for deletion were old emails, instant messages, and communications conducted via the Bloomberg terminal service. However, the order specified that there were “glitches” in the project, as the identified documents were not actually expunged as intended.

During the process of troubleshooting the aforementioned issue in June 2019, employees of the firm inadvertently executed deletion tasks on electronic communications dating back to the first quarter of 2018, as stated in the order.

As per the order, the employees mistakenly believed, based on information provided by the firm’s archiving vendor, that all the identified documents were encoded in a manner that would prevent their permanent deletion. These documents were legally mandated to be retained for a period of three years.

According to the order, it was discovered that the vendor failed to apply the default retention settings to a specific email domain. As a result, numerous communications, including those that were required to be retained under the broker-dealer recordkeeping rules, were permanently deleted.

The deletions came to light in October 2019 when a JPMorgan team, tasked with compiling records related to legal cases, discovered the absence of emails from the early 2018 period, as indicated in the order.

JPMorgan notified the SEC about the deletions in January 2020. The order highlights that during at least twelve civil securities-related regulatory investigations, including eight conducted by the SEC Commission staff, JPMorgan received subpoenas and document requests for communications that were permanently deleted and thus could not be retrieved or produced.

The order reveals that JPMorgan failed to notify seven out of the eight investigative teams at the Commission that the deletion incident in 2019 had compromised the production of documents in response to subpoenas.

The order acknowledges that since the deleted communications are irretrievable, it remains unknown, and ultimately impossible to determine, how the loss of these records may have impacted the regulatory investigations.

According to the order, a member of JPMorgan’s compliance department acknowledged in an internal email following the discovery of the deletions that the lost documents could have implications for potential future investigations, legal matters, and regulatory inquiries.




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By Ryan

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