Back in January we reported on allegations that JPMorgan Chase & Co. had shafted its employees by parking their 401(k) investments in relatively high-fee funds managed in-house or by close business partner BlackRock. By choosing its own mutual funds and failing to organize participants' $21 billion in assets as a collective trust – a move that significantly lowers fees for institutional investors – a class-action suit claimed that the bank had profited at the expense of its own employees' nest eggs.
On Thursday, a different employee piggy-backed with a nearly identical suit, accusing JPMorgan of “engaging in self-dealing and acting to benefit themselves to the detriment of Plan participants by making half of all Plan investment options JPMorgan-affiliated funds, favoring a close business partner, BlackRock.”
Like the previous suit, this one posits that all of the sudden, as federal scrutiny loomed, the bank abruptly managed to find lower-fee options for its in-house funds. That was only after coming under investigation and paying settlements in late 2015 for engaging in self-dealing in wealth management investments without informing clients. From the more recent suit:
“That expenses for the JPMorgan- and BlackRock-affiliated funds were significantly reduced only after the SEC and other government agencies began their investigation into JPM Bank’s improper preference for JPMorgan-affiliated funds and third-party funds in which JPMorgan is self-interested, while funds not affiliated with the JPMorgan or BlackRock did not see similar fee changes, indicates that defendants were engaged in the same self-dealing with respect to the Plan as was revealed by the SEC Order.”
JPMorgan denies the central allegations here, but something odd definitely happened in JPMorgan 401(k)s in late 2015. For one thing, JPMorgan flat-out obliterated its own Small Cap Core Fund by shifting employee retirement assets to a significantly cheaper index fund. And fees fell across the board, as this telling chart from the recent lawsuit indicates:
Why hadn't JPMorgan found the cheapest possible investments before the feds were snooping around? That is the question.
(The suit is Orellana v. JPMorgan Chase & Co. et al.)