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Trading Unit of 5-Count Felon JPMorgan Chase Gave 550 Customer Passwords and User Names to an “Active Customer” for More than a Decade; SEC Fines It a Paltry $2.75 Million

Courtesy of Pam Martens

When it comes to the top watchdog of trading on Wall Street, the Securities and Exchange Commission (SEC), that dog can’t hunt. It’s not that the career professionals at the SEC haven’t tried to hunt, it’s that when they get too close to ensnarling some powerful person on Wall Street, they are told to stand down. Having a Wall Street defense lawyer at the helm of the SEC under both Presidents Obama and Trump certainly hasn’t helped the matter. (See here and here.) The jury is still out on President Biden’s SEC Chair, Gary Gensler, who just took office on April 17. (It should be noted, however, that the case described below was settled by the SEC after he took office.)

With that as a backdrop, consider the press release and order that the SEC released on June 29 against Neovest Inc., an electronic trading platform owned by the 5-count felon, JPMorgan Chase.

The press release headlined the matter as if the case was all about JPMorgan Chase failing to register its Neovest trading platform as a registered broker dealer, like it was a paperwork glitch. But that was just the tip of the iceberg of what was going on here.

First of all, it didn’t just slip JPMorgan’s mind to register this trading platform with regulators. According to the SEC order, Neovest had been registered as a broker dealer with the SEC and the Wall Street self-regulator, FINRA, under the name Neovest Trading for more than a decade: from March 1996 through December 2006. JPMorgan bought Neovest in September 2005 and consciously made the decision to deregister Neovest Trading as a broker dealer in December of the following year. That meant that it fell off of the SEC and FINRA radar screens for supervision and monitoring.

JPMorgan has been trading on Wall Street for more than a century. It has hundreds of compliance personnel that fully understand that broker dealers engaging in trades with customers have to be registered with the SEC and FINRA. So if it consciously made the decision to deregister Neovest, while allowing it to continue conducting the same trading activity with customers – which the SEC order says it did – then it would appear that JPMorgan might have had an agenda.

According to the SEC order, Neovest had 550 customers, which were “mostly institutional investors and asset managers.” Buried in the SEC order is a startling and almost inconceivable breach of protecting the security of the accounts of those 550 customers. The SEC reveals this:

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