The SEC slapped a JPMorgan subsidiary with a $2.8 million fine for operating as an unregistered broker-dealer

SEC
  • Neovest, an electronic trading platform acquired by JPMorgan in 2005, was hit with a $2.75 million fine.
  • After deregistering as a broker-dealer, Neovest continued to run its operations as before in violation of securities law.
  • Neovest instructed clients to pay service fees to JPMorgan, which then kicked those fees back to Neovest, according to the SEC.
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The Securities and Exchange Commission cracked down on a small JPMorgan subsidiary for operating as an unregistered broker-dealer after being acquired by the bank, the regulator announced on Tuesday.

Neovest, an electronic trading platform acquired by JPMorgan in 2005, was hit with a $2.75 million fine for violating securities laws. The platform had operated as a registered broker-dealer prior to the JPMorgan buyout, and deregistered shortly afterward.

But according to SEC filings, even after deregistering, Neovest continued to run its operations as before, facilitating stock and options trades for mostly institutional clients. Now under the JPMorgan umbrella, Neovest instructed clients to pay service fees to the bank – which is a registered broker-dealer. JPMorgan then kicked those fees back to Neovest, according to the SEC.

“The Neovest Trading Division of [JP Morgan Securities] will bill for executions via Neovest’s software. The infrastructure and technology used in these trades will remain with Neovest,” the platform allegedly told clients – despite the “Neovest Trading Division of JP Morgan Securities” not existing as a legal entity.

Neovest did not admit or deny the SEC’s allegations, but has consented to the fine.

“Today’s charges underscore the SEC’s commitment to securing the important investor protections that flow from broker-dealer registration,” said Joseph Sansone, chief of the SEC’s Market Abuse Unit.

But Commissioner Hester Peirce disputed the SEC’s decision, writing in a dissent that Neovest should not properly be seen as engaging in broker activity – and so cannot be liable for failing to register as a broker-dealer.

“Not only is the [SEC’s Neovest ruling] legally deficient, but it further complicates an already confusing area of the law and introduces additional uncertainty,” she wrote.