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Regulation and Compliance > Federal Regulation > FINRA

J.P. Morgan Fined Another $200K Over Broker’s Unsuitable Trades in His Grandma’s Account

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What You Need to Know

  • The broker and his brother, also a J.P. Morgan broker, traded structured products in their grandmother's account, according to FINRA.
  • The firm placed restrictions on how many structured products could be traded on behalf of the client.
  • But the restrictions were ignored and the client ended up with losses of $5.5 million in structured notes by 2019.

The Financial Industry Regulatory Authority fined J.P. Morgan an additional $200,000 for failing to reasonably supervise a broker who made unsuitable, unauthorized trades in his grandmother’s account with the firm.

From March 2014 through March 2019, Evan Schottenstein, along with his brother, Avi Schottenstein, another rep at the firm, allegedly made the trades in question, which were largely in structured products, according to FINRA.

During that period, Evan Schottenstein was responsible for his grandmother’s investment strategy and made all trade recommendations for her account, FINRA said. At the time, the grandmother was 88 years old, retired and widowed, according to FINRA.

Evan Schottenstein filled his grandmother’s account with structured products, exceeding his firm’s limits for such investments, FINRA said. The firm used an exception report that generated monthly alerts when structured products exceeded a 50% threshold for a client’s net account equity and a 15% threshold for a client’s liquid net worth, FINRA noted.

However, from May 2014 through May 2015, Evan Schottenstein bought over $108 million in securities for his grandmother, including $77 million in structured notes. On May 21, 2015, the firm placed restrictions on how many structured products could be traded in her account. But those restrictions were ignored and, by 2019, structured notes in her account realized losses of $5.5 million, FINRA said.

Evan Schottenstein also created an email account in his grandmother’s name in 2014 despite the fact that she didn’t use email or own a computer and he forged her signature on a $5 million private equity investment in 2018, FINRA alleged.

JPM failed to take reasonable actions to investigate and address” Evan Schottenstein’s “misconduct, despite the presence of red flags,” FINRA said in a letter of acceptance, waiver and consent.

(In the letter, FINRA identified Evan Schottenstein as Registered Representative 1 (RR1), Avi Schottenstein as RR2 and their grandmother, Beverley Schottenstein, as Customer A.)

J.P. Morgan didn’t immediately respond to a request for comment on Tuesday. But, without admitting or denying FINRA’s findings, the firm signed the AWC letter on July 15, consenting to the imposition of the fine and a censure. FINRA signed the letter on Thursday.

FINRA started investigating the matter after J.P. Morgan terminated Evan Schottenstein’s registration with the firm in 2019, according to the letter. Avi Schottenstein stopped working for the firm that same year. Each of them was with the firm for five years.

In July 2019, Beverley Schottenstein started an arbitration proceeding against her grandsons and JPM. On Feb. 4, 2021, an arbitration panel issued her an award of about $18.6 million, with Evan ordered to pay $9 million, Avi ordered to pay $602,251 and JPM ordered to pay $9 million.

Evan Schottenstein was barred from the industry by FINRA in 2021 and his brother is no longer a registered broker or advisor, according to their reports on FINRA’s BrokerCheck website. Each of them worked for Morgan Stanley starting in 2009 before leaving the wirehouse to join J.P. Morgan in 2014.

(Photo: Shutterstock)


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