J.P. Morgan Securities LLC has agreed to pay a fine of $3.25 million as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).

From at least January 2016 through April 2020, JPMS failed to reasonably supervise a registered representative who generally recommended an investment strategy that involved taking large, concentrated positions in high-yield securities using leverage.

Customers in this strategy lost money during a period of significant market volatility starting in March 2020.

The firm failed to take reasonable action in response to red flags related to the representative’s trading activity and use of discretion without written authorization identified throughout the relevant period.

JPMS failed to reasonably address supervisory alerts or take sufficient steps aimed at preventing the representative’s discretionary trading and keeping customers informed of the risky nature of the representative’s trading strategy, including informing customers of their leverage and concentration levels and confirming that customers understood both the strategy and their current risk tolerance.

When the markets began experiencing increased volatility in March 2020, certain of the representative’s customers faced steep declines as many of the customers’ positions, which were purchased using margin or other leverage, began losing significant value.

Customers began receiving margin calls and were forced to liquidate significant portions of their portfolios at steep losses. By the end of April 2020, the representative’s customers began initiating arbitrations and complaints related to his handling of their accounts. In response to customer losses and complaints, the firm initiated a review of the representative’s trading practices and took steps to limit the representative’s customers’ leverage and concentration levels.

To date, the firm has paid over $55 million to complaining customers via arbitration awards or settlements and has voluntarily made offers of approximately $1.35 million to six additional customers who incurred losses while engaged in the representative’s investment strategy.

By failing to reasonably supervise its representative’s recommendations for suitability and his improper exercise of discretion without written authorization, JPMS violated FINRA Rules 3110(a) and 2010.

JPMS has agreed to a censure on top of the $3,250,000 fine.