SEC fines JPMorgan $4 million for deleting electronic communications

The SEC imposed a $4 million fine on JPMorgan Securities Inc. for improperly deleting millions of emails and other electronic communications sent by its registered representatives.

In an order Thursday, the Securities and Exchange Commission said the firm, a subsidiary of JPMorgan Chase & Co., deleted 47 million electronic communications from 8,700 inboxes from Jan. 1 through April 23, 2018. That move related to a project the firm launched in 2016 to remove emails from its system that it no longer had to retain under securities laws.

The firm discovered in June 2019 that the vendor it was using did not properly code the communications that were eradicated. It destroyed those from the first quarter of 2018 that the firm was supposed to have maintained for 36 months under record-keeping rules.

The firm was unable to recover the 47 million communications from approximately 7,500 employees who had contact with customers. The communications included emails, instant messages and communications sent over Bloomberg terminals.

As a result, JPMorgan couldn't retrieve them to respond to subpoenas and document requests in at least 12 regulatory investigations, including eight conducted by the SEC, the order states.

In response to the inadvertent deletions, JPMorgan implemented its own 36-month-retention coding and notified the SEC of the problem in January 2020, according to the order.

JPMorgan agreed to the $4 million fine and a censure to settle the SEC’s charges. The firm did not admit nor deny the SEC’s findings.

“J.P. Morgan takes its record keeping obligations seriously,” spokesperson Veronica Navarro said in a statement. “We have taken steps to enhance our process and procedures.”

The enforcement action shows that brokerages should keep track of all electronic communications indefinitely, said Sander Ressler, managing director at Essential Edge Compliance Outsourcing. A firm never knows when a regulator, an arbitration claimant or a client might seek a past electronic trail.

“In this day and age, I don’t know if it’s prudent to delete any electronic communications, regardless of whether it falls outside of regulatory requirements,” Ressler said. “The more historical information you have, the better you can serve the regulators and your clients.”  

JPMorgan may have been streamlining its electronic archives due to high storage costs, Ressler said. But excising the messages left the firm empty-handed when the SEC came calling.

“It looks deceptive, like you’ve got something to hide,” Ressler said.

Keeping accurate records of communications sent over messaging apps is an emerging regulatory challenge for firms. The SEC has launched a crackdown on firms conducting business on WhatsApp and other technology.