Stock Broker and Account Executive Fraud, Misrepresentation and Mismanagement FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.
J. P. Morgan Securities LLC (CRD #79, New York, New York) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $150,000. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it published a research report downgrading a company from neutral to underweight. The findings stated that one of the principal-stated reasons for the downgrade was that the company had released into income $1.1 billion in reserves based on the expectation that it would win certain lawsuits in which the company was the plaintiff. The firm’s analyst criticized that decision, pointing out that any potential recovery was uncertain and at least three years in the future. The report discussed lawsuits against the company without disclosing that the firm’s banking affiliate was a plaintiff in one of the lawsuits against the company. The findings also stated that after publication of the report, the company complained to the firm about the research report, including the firm’s failure to disclose its affiliate’s role in one of the pending lawsuits. In response to this complaint, the firm agreed to voluntarily re-post a revised report containing an additional disclosure. The findings also included that the firm issued a revised report that added information about the firm’s affiliate pending litigation, but it did not remove the original report, which continued to be available on its website for over a year, and did not redistribute the revised report to the approximately 900 people who received the original report so that the original research report was not fair and balanced, and did not provide a sound basis for readers to properly evaluate all relevant facts.
FINRA found that the firm permitted a manager to supervise equity research analysts without being properly licensed as a Research Principal (RP); during that time, the manager had not passed the Series 87 examination and never sought to be registered as a Series 16. The firm permitted the manager to supervise research analysts for nine months without being properly qualified. The manager ceased supervising these research analysts when the firm transferred all supervisory responsibilities away from the manager. FINRA also found that the firm knew that the manager needed to obtain a Series 87 around the time the manager was promoted, but failed to ensure compliance with the registration rules. The manager’s Series 87 test window was not opened until eight months after the promotion, and the manager was permitted to supervise analysts for an additional month. In addition, FINRA determined that the firm’s WSPs were not timely amended to reflect the RP requirement, and its Equity Research Policies and Procedures Manual did not require research management to have either the Series 16 or 87, and were not revised to reflect the Series 16 or 87 license until more than a year after the RP licensing requirement became effective. (FINRA Case #2009019359201).