JP Morgan Chase Sale of Proprietary Mutual Funds Under Investigation by Sonn & Erez

As JP Morgan falls deeper and deeper into the center of attention of the media, it is beginning to be clear that the problems the firm faces goes beyond losing billions of dollars in derivative trading. It is now alleged that the firm has been inappropriately using its financial advisors to promote their own mutual funds and products, even though in many cases they seemed to have performed below the market average. Several former brokers have come forth and identified a company culture which according to the New York Times “emphasized sales over client needs”. This lead to customers being potentially offered proprietary funds which underperformed instead of having been given choices which might have been better suited for their needs.

The advantages for JP Morgan are clear, by offering their own mutual funds for sale they are able to gain profits from the fees they levy on these accounts. This strategy seems to have been working significantly well for the company, since as a result of it they have been able to buck the industry trend and have had large growth in this sector of the company. All of this has occurred even though according to the fund researcher Morningstar, only “Fifty-nine percent of its funds beat their peer group”, which means 41% if the funds offered performed below market average. With all this information, it would be logical to question why people would invest in these funds, but that is not a very simple answer. Part of the reason could potentially be the fact that the bank published marketing materials containing “hypothetical performance results, even though actual returns existed” stated the New York Times. Furthermore, according to the Times, these hypothetical outcomes which they published were vastly exaggerated since the actual returns on the funds were “lower than the theoretical results”. This has been part of the reason behind why “regulators, including the Securities and Exchange Commission, the Financial Industry Regulatory Authority, the Manhattan district attorney and officials in New Jersey and Delaware, have opened inquiries into JPMorgan’s sales practices” reported the Times.

One of the main items of contention on what the bank has been doing revolves around an offering called Chase Strategic Portfolio. This particular offering has been allegedly heavily pushed by the bank, and currently has assets of $20 billion. It is composed of 15 mutual funds, with the majority being proprietary funds by JP Morgan. Furthermore, they were intended to attract normal investors by offering them a combination of stocks and bonds, with six different combinations which had different levels of risk so as to allow any investor to partake regardless of their risk tolerance. This product has been allegedly heavily pushed due to its lucrative nature, since it allows JP Morgan to collect fees for managing the account as well as for the mutual fund. This is the product in which the marketing materials were allegedly inaccurate, and as such might have led investors to invest without being fully aware of what the true nature of the fund was.

If you have invested in this product, please contact one of our attorneys. Sonn & Erez is a nationally recognized securities firm representing individual and institutional investors who are victims of securities fraud, Ponzi schemes, and financial adviser negligence. For more information, contact Sonn & Erez at 1-844-689-5754.

Contact:
Jeffrey Sonn, Esq.
Jeffrey Erez, Esq.
1-844-689-5754 1-954-763-4700

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