JP Morgan Securities LLC (JPMS) has agreed to pay a $150,000 fine and accept a censure as part of a settlement with the Financial Industry Regulatory Authority (FINRA) related to deficiencies in its supervisory processes for preliminary IPO prospectus delivery.

FINRA’s investigation found that from January 2018 through December 2021, JPMS’s supervisory system and written supervisory procedures (WSPs) were not reasonably ready to ensure compliance with Rule 15c2-8(b) of the Exchange Act, which governs preliminary IPO prospectus delivery to institutional customers.

JP Morgan Securities Fined $150K by FINRA Over IPO Prospectus

While the firm’s WSPs required delivery of preliminary IPO prospectuses to customers expected to receive allocations, the supervisory system did not include an effective process to verify that delivery had occurred. During this period, supervisors have to confirm whether customers had consented to electronic delivery and whether JPMS had their email addresses on file. However, there was no systematic review to confirm actual delivery to institutional clients. As a result, information indicating missed deliveries went unreviewed.

From March 2019 through December 2021, the firm reviewed only a sample of three IPOs per quarter for compliance, leaving the majority of approximately 400 IPOs without adequate supervisory oversight. Additionally, the firm failed to add customers who declined electronic delivery to a list for hard-copy distribution, further contributing to delivery failures. These lapses meant preliminary prospectuses were not consistently delivered at least 48 hours before confirmations of sale, as required.

JPMS identified some of these deficiencies internally in October 2021 and implemented remedial measures. The firm revised its WSPs on December 30, 2021, and again on January 10, 2024, to address the shortcomings.

By failing to maintain a supervisory system reasonably designed to ensure compliance with preliminary IPO prospectus delivery rules, JPMS violated FINRA Rules 3110(a), 3110(b), and 2010.

In addition to the $150,000 fine, JPMS has agreed to a censure, signaling FINRA’s continued focus on robust supervisory systems to protect institutional investors and maintain market integrity.

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