From October 2008 to July 2012,
JP Morgan excluded certain balances that it was supposed to include on reports,
as well as included certain balances it was supposed to exclude from the
reports. According to FINRA, JP Morgan’s system for preparing reports
of customer debit balances in securities margin accounts was inadequate.
Reportedly, the systems failed to remain up-to-date with the changes in
JP Morgan’s business over the years.
JP Morgan was actually the one that brought the matter up to FINRA after
discovering that the balances on its reports were high compared to industry
averages. JP Morgan proactively took corrective measures to ensure that
the reporting errors were remedied.
FINRA requires all brokerage firms that issue margin accounts to customers
to submit monthly reports of these account balances in two parts: total
debit balances and total free credit balances. Inaccurate reporting to
FINRA is a violation of securities industry regulations.
In the end, the corrected figures were anywhere from three to 27 percent
different than what was originally reported for margin debt figures and
one to 20 percent different for free credit balance figures.
JP Morgan accepted and consented to FINRA’s findings, agreeing to
a censure, a fine of $500,000, and proof of corrective action to ensure
future compliance with securities reporting regulations.