Notice of Proposed Exemption Involving J.P. Morgan Securities LLC, J.P. Morgan Investment Management Inc., J.P. Morgan Securities, and Chase Wealth Management (Collectively, the Applicants); Located in Weehawken, New Jersey, 57446-57451 [2021-21578]
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Federal Register / Vol. 86, No. 197 / Friday, October 15, 2021 / Notices
the OPM, MSPB and DOJ ‘‘Best
Practice’’ guidelines for reference
checking.
(5) An estimate of the total number of
respondents and the amount of time
estimated for an average respondent to
respond: An estimated 750 respondents
will utilize the form, and it will take
each respondent approximately 60
minutes to complete the form.
(6) An estimate of the total public
burden (in hours) associated with the
collection: The estimated annual public
burden associated with this collection is
750 hours, which is equal to (750 (total
# of annual responses) * 60 minutes.
(7) An Explanation of the Change in
Estimates: N/A.
If additional information is required
contact: Melody Braswell, Department
Clearance Officer, United States
Department of Justice, Justice
Management Division, Policy and
Planning Staff, Two Constitution
Square, 145 N Street NE, 3E.405A,
Washington, DC 20530.
Dated: October 12, 2021.
Melody Braswell,
Department Clearance Officer for PRA, U.S.
Department of Justice.
[FR Doc. 2021–22526 Filed 10–14–21; 8:45 am]
BILLING CODE 4410–04–P
DEPARTMENT OF LABOR
Employee Benefits Security
Administration
[Exemption Application No. D–11963]
Notice of Proposed Exemption
Involving J.P. Morgan Securities LLC,
J.P. Morgan Investment Management
Inc., J.P. Morgan Securities, and Chase
Wealth Management (Collectively, the
Applicants); Located in Weehawken,
New Jersey
Employee Benefits Security
Administration, Labor.
ACTION: Notice of Proposed Exemption.
AGENCY:
This document gives notice of
a proposed individual exemption from
certain prohibited transaction
restrictions of the Internal Revenue
Code of 1986, as amended (the Code)
involving certain principal trades
previously caused or executed by J.P.
Morgan Securities LLC and J.P. Morgan
Investment Management Inc. for certain
non-ERISA plan clients.
DATES: If granted, the exemption will be
in effect from December 14, 2010 until
September 16, 2013. Written comments
and a request for a public hearing on the
proposed exemption should be
SUMMARY:
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submitted to the Department by January
13, 2022.
ADDRESSES: All written comments and
requests for a hearing should be sent to
the Employee Benefits Security
Administration (EBSA), Office of
Exemption Determinations, Attention:
Application No. D–11963 via email to eOED@dol.gov or online through the
Federal eRulemaking Portal: https://
www.regulations.gov. Any such
comments or requests should be sent by
the end of the scheduled comment
period. The application for exemption
and the comments received will be
available for public inspection in the
Public Disclosure Room of the
Employee Benefits Security
Administration, U.S. Department of
Labor, Room N–1515, 200 Constitution
Avenue NW, Washington, DC 20210.
See SUPPLEMENTARY INFORMATION below
for additional information regarding
comments.
Ms.
Anna Vaughan of the Department,
telephone (202) 693–8565. (This is not
a toll-free number.)
SUPPLEMENTARY INFORMATION: As
described in further detail below, J.P.
Morgan Securities LLC (JPMS) and J.P.
Morgan Investment Management Inc.
(JPMIM) previously caused or executed
prohibited principal transactions on
behalf of certain plans covered by the
Employee Retirement Income Security
Act of 1974 (ERISA plans) and plans not
covered by ERISA (non-ERISA plans).
The Applicants corrected the ERISA
plan-related prohibited transactions,
which were reviewed and confirmed by
an independent fiduciary, and received
‘‘no action letters under the
Department’s Voluntary Fiduciary
Compliance Program (the VFC
Program).1
The VFC Program is not available for
corrections of non-ERISA plan-related
prohibited transactions; therefore, the
Applicants are seeking exemptive relief
for their correction of prohibited
principal transactions involving the
Applicants and their non-ERISA plan
clients (the Covered Transactions). The
Applicants adhered to the same
conditions to correct the Covered
Transactions that they applied to correct
the transactions involving their ERISA
plan clients under the VFC Program.
FOR FURTHER INFORMATION CONTACT:
Comments
In light of the current circumstances
surrounding the COVID–19 pandemic
caused by the novel coronavirus which
may result in disruption to the receipt
1 See 67 FR 15062 (Mar. 28, 2002), as updated at
71 FR 20262 (Apr. 19, 2006).
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of comments by U.S. Mail or hand
delivery/courier, persons are
encouraged to submit all comments
electronically and not to submit paper
copies. Comments should state the
nature of the person’s interest in the
proposed exemption and the manner in
which the person would be adversely
affected by the exemption, if granted.
Any person who may be adversely
affected by an exemption can request a
hearing on the exemption. A request for
a hearing must state: (1) The name,
address, telephone number, and email
address of the person making the
request; (2) the nature of the person’s
interest in the exemption and the
manner in which the person would be
adversely affected by the exemption;
and (3) a statement of the issues to be
addressed and a general description of
the evidence to be presented at the
hearing. The Department will grant a
request for a hearing made in
accordance with the requirements above
where a hearing is necessary to fully
explore material factual issues
identified by the person requesting the
hearing. A notice of such hearing shall
be published by the Department in the
Federal Register. The Department may
decline to hold a hearing if: (1) The
request for the hearing does not meet
the requirements above; (2) the only
issues identified for exploration at the
hearing are matters of law; or (3) the
factual issues identified can be fully
explored through the submission of
evidence in written (including
electronic) form. Warning: All
comments received will be included in
the public record without change and
may be made available online at https://
www.regulations.gov, including any
personal information provided, unless
the comment includes information
claimed to be confidential or other
information whose disclosure is
restricted by statute. If you submit a
comment, EBSA recommends that you
include your name and other contact
information in the body of your
comment, but DO NOT submit
information that you consider to be
confidential, or otherwise protected
(such as Social Security number or an
unlisted phone number) or confidential
business information that you do not
want publicly disclosed. However, if
EBSA cannot read your comment due to
technical difficulties and cannot contact
you for clarification, EBSA might not be
able to consider your comment.
Additionally, the https://
www.regulations.gov website is an
‘‘anonymous access’’ system, which
means EBSA will not know your
identity or contact information unless
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Federal Register / Vol. 86, No. 197 / Friday, October 15, 2021 / Notices
you provide it in the body of your
comment. If you send an email directly
to EBSA without going through https://
www.regulations.gov, your email
address will be automatically captured
and included as part of the comment
that is placed in the public record and
made available on the internet.
Background
This document contains a notice of
proposed exemption that, if granted,
would provide exemptive relief from the
sanctions resulting from the application
of Code Section 4975, by reason of Code
Section 4975(c)(1)(A) and (D)–(E). The
proposed exemption has been requested
by JPMS and its affiliates pursuant to
Code Section 4975(c)(2) in accordance
with the Department’s prohibited
transaction exemption procedures set
forth in 29 CFR part 2570, subpart B (76
FR 66637, 66644, October 27, 2011).
Effective December 31, 1978, Section
102 of the Reorganization Plan No. 4 of
1978, 5 U.S.C. App 1 (1996) transferred
the authority of the Secretary of the
Treasury to issue administrative
exemptions under Code Section
4975(c)(2) to the Secretary of Labor.
Accordingly, this notice of proposed
exemption is being issued solely by the
Department.
Summary of Facts and
Representations 2
1. JPMorgan Chase & Co. (JPMorgan)
is a global financial services firm that
provides investment banking, financial
services for consumers and small
businesses, commercial banking,
financial transaction processing and
asset management.
2. JPMS, an indirect wholly-owned
subsidiary of JPMorgan, is a brokerdealer registered with the U.S.
Securities and Exchange Commission
(the SEC) and supervised by the
Financial Industry Regulatory
Authority, Inc. In addition, JPMS is an
investment advisor regulated by the SEC
as a ‘‘dual registrant.’’ JPMS serves as an
investment advisor under investment
advisory programs offered by its retail
brokerage lines of business, including
the J.P. Morgan Securities division of
JPMS (JPMS Brokerage). JPMS Brokerage
serves as an investment adviser to
ERISA-covered plans (the ERISA Plan
2 The Department notes that the availability of
this exemption, if granted, is subject to the express
condition that the material facts and representations
contained in application D–11963 are true and
complete, and accurately describe all material terms
of the transactions covered by the exemption. If
there is any material change in a transaction
covered by the exemption, or in a material fact or
representation described in the application, the
exemption will cease to apply as of the date of the
change.
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Clients) and accounts and plans subject
to Code Section 4975 that are not
covered by ERISA (the Non-ERISA Plan
Clients). JPMS’ ERISA and Non-ERISA
Plan Clients participate in certain JPMSsponsored wrap fee programs under the
Chase Wealth Management (CWM) line
of business (the CWM Wrap Program).
Clients of these programs generally pay
a bundled fee to the program sponsor
and receive custody, trade execution,
investment management, and other
services.
3. JPMIM, an indirect wholly-owned
subsidiary of JPMorgan, is an
investment advisor registered with the
SEC. JPMIM serves as an investment
adviser for ERISA and Non-ERISA Plan
Clients participating in the CWM Wrap
Program. During the time period
relevant to this proposed exemption,
JPMIM was the overlay manager for one
program and one of the offered portfolio
managers of another program.
Covered Transactions Involving JPMIM
4. According to the Applicants, a
JPMorgan employee conducted a routine
monitoring of accounts in early July
2012, and noticed that a particular
account number was not enabled to
trade on JPM–X, an ‘‘alternative trading
system’’ owned and operated by JPMS.
According to the Applicants, the
employee did not recognize the account
was associated with JPMIM or an
affiliate. Instead, the employee had seen
documentation indicating that the
account was associated with a nonaffiliated third party. On July 27, 2012,
the employee authorized the account for
activation in JPM–X, including engaging
in principal trading.
The Applicants state that, on July 30,
2012, the head of the Electronic Client
Services (ECS) group noticed the JPM–
X trading flow associated with the
recently-activated account number had
an account name that included a
‘‘jpmim’’ prefix. Based on that
information, the head of the ECS group
immediately de-activated the account
for principal trading in JPM–X. The
principal trades executed for the CWM
Wrap Program were discovered a few
months later in connection with a
routine exam of JPMS by the SEC (the
SEC Exam of JPMS). In total, 3,989
trades of securities issued by thirdparties were executed for the CWM
Wrap Program on a principal basis.
Regarding these trades: (a) 3,985 were
sales by a Non-ERISA Plan Client to a
counterparty affiliated with JPMorgan (a
JPM Counterparty), with an aggregate
sales price of $2,682,332.34 (the JPMIM
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Sales Transactions); 3 and (b) four were
purchases by a Non-ERISA Plan Client
from a JPM Counterparty (the JPMIM
Purchase Transactions) with an
aggregate purchase price of $46,940.55.
The purchased shares had not been resold by the Non-ERISA Plan Client as of
the date the transactions were
corrected.4 The Applicants represent
that JPMIM and JPMS endeavored to
correct the prohibited transactions as
quickly as possible in the manner
described in paragraph 11 below.
5. The Applicants represent that the
trades did not result in any
commissions being paid by the NonERISA Plan Clients to JPMIM or its
affiliates. Rather, because the trades
were executed under the CWM Wrap
Program, no identifiable transaction
compensation was paid in connection
with either the JPMIM Sales
Transactions or the JPMIM Purchase
Transactions. The Applicants represent
that JPMIM is no longer enabled to
execute trades on JPM–X.
Covered Transactions Involving JPMS
Brokerage
6. According to the Applicants, on
December 14, 2010, January 13, 2011,
February 3, 2012, December 31, 2012,
August 22, 2013 and September 16,
2013, 15 trades involving JPMS
Brokerage were mistakenly executed on
a principal basis, although not on JPM–
X. The Applicants state that JPMS
Brokerage’s compliance department
discovered the Covered Transactions in
connection with the SEC Exam of JPMS.
Of the 15 trades: (a) Two were sales of
securities,5 where each sale was by a
Non-ERISA Plan Client to a JPM
Counterparty (the JPMS Brokerage Sales
Transactions), with an aggregate sales
price of $61,854.54; and (b) 13 were
purchases of securities by a Non-ERISA
Plan Client from a JPM Counterparty
(the JPMS Brokerage Purchase
Transactions), with an aggregate
purchase price of $557,232.08.6 The
purchased securities were subsequently
sold by the Non-ERISA Plan Client
before the prohibited transactions were
discovered. The Applicants state that
JPMS Brokerage endeavored to correct
the prohibited transactions as quickly as
possible in the manner described in
paragraph 11 below.
7. The Applicants represent that the
trades in question did not result in any
3 These trades involved 3,784 Non-ERISA Plan
Clients.
4 These trades involved two Non-ERISA Plan
Clients.
5 These trades involved two Non-ERISA Plan
Clients.
6 These trades involved seven Non-ERISA Plan
Clients.
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commissions being paid by the NonERISA Plan Clients to JPMS or its
affiliates. Rather, the trades were
executed under the CWM Wrap
Program. Further, no identifiable
transaction compensation was paid in
connection with either the JPMS
Brokerage Sales Transactions or the
JPMS Brokerage Purchase Transactions.
Other Prohibited Transactions, as
Corrected Under the VFC Program
8. The Applicants represent that the
errors and mistakes that gave rise to
prohibited transactions involving the
Non-ERISA Plan Clients also gave rise to
prohibited transactions involving
certain ERISA Plan clients of JPMIM
and JPMS (the ERISA Plan Prohibited
Transactions). The Applicants state that
JPMIM and JPMS Brokerage corrected
the ERISA Plan Prohibited Transactions
pursuant to the requirements set forth in
the VFC Program.7 The Applicants
represents that they did not intend to
engage in the prohibited transactions
and have implemented policies and
procedures to prevent future
occurrences of such (or similar)
transactions.
JPMIM and JPMS filed VFC Program
Applications 30–105378 and 30–
105379, respectively, on December 31,
2014, and filed a supplement to those
applications on July 1, 2015
(collectively, the VFC Program
Applications). The Applicants received
‘‘no action’’ letters from the Department
dated September 14, 2015, in
connection with their VFC Program
Applications for the ERISA Plan
Prohibited Transactions.8
9. The Applicants state that although
the Non-ERISA Plan Prohibited
Transactions were entered into under
similar circumstances as the ERISA Plan
Prohibited Transactions (and in some
cases pursuant to the same block trade)
and corrected using the same
methodology used to correct the ERISA
Plan Prohibited Transactions, the NonERISA Plan Prohibited Transactions are
ineligible for relief under the VFC
7 The Department notes that the VFC Program
encourages the full correction of certain breaches of
fiduciary responsibility and the restoration to
participants and beneficiaries of losses resulting
from those breaches. Persons potentially liable for
certain types of ERISA fiduciary breaches may
avoid certain civil action and penalties by fulfilling
the Program’s requirements. Several categories of
transactions covered by the VFC Program also
qualify for excise tax relief under class exemption
2002–51, if the conditions therein are met. See 67
FR 70623 (Nov. 25, 2002) as amended at 71 FR
20135 (Apr. 19 2006).
8 In general terms, the Department may issue a
‘‘no action’’ letter to an applicant under the VFC
Program, with respect to the breach identified in the
application, if the applicable requirements of the
VFC Program are satisfied.
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Program and PTE 2002–51, as amended,
because they involved transactions with
Non-ERISA Plan Clients that are not
covered under Title I of ERISA.9
Prohibited Transaction Analysis
10. Absent an exemption, the Covered
Transactions violated several prohibited
transaction provisions, because JPMS or
JPMIM caused Covered Transactions to
occur that resulted in JPMS or JPMIM
receiving money or securities from the
Non-ERISA Plan Client. Specifically, the
Covered Transactions constitute: (a) A
sale or exchange of property (i.e., money
or securities) between a Non-ERISA
Plan Client and a JPM Counterparty (a
disqualified person) prohibited by Code
Section 4975(c)(1)(A); (b) a transfer of
plan assets (i.e., money or securities)
from the Non-ERISA Plan Client to a
JPM Counterparty (a disqualified
person) prohibited by Code Section
4975(c)(1)(D); and (c) an act undertaken
by JPMS or JPMIM to deal with plan
assets in its own interest or for its own
account prohibited by Code Section
4975(c)(1)(E).
Covered Transaction Corrections
11. The Applicants represent that the
Covered Transactions were corrected
using the same applicable
methodologies described in the VFC
Program that they used to correct
similar prohibited transactions that
occurred with their ERISA clients. The
Applicants engaged an independent
fiduciary, Evercore Trust Company,
N.A. (Evercore),10 to determine:
Whether the correction methodologies
were properly applied, including
verifying the market value of the
securities at the time the prohibited
transactions occurred; and whether the
correction methodologies provided the
Non-ERISA Plan Clients with a greater
benefit than other correction
9 In granting an amendment to PTE 2002–51, and
in response to a comment to the proposed
amendment, the Department noted, ‘‘the grant of
this amendment does not foreclose [the
Department’s] future consideration of individual
exemption requests for transactions that are outside
the scope of relief provided by both the VFC
Program and the class exemption under
circumstances when, for example a financial
institution received a no action letter applicable
only to plans subject to the Program for a
transaction(s) that involved both plans and such
IRAs.’’ See 71 FR 20135 at 37.
10 This proposed exemption requires, among
other things, that there were no contractual
provisions purporting to entitle Evercore, in whole
or in part, to indemnification by the Applicants, or
by a party related to the Applicants, for negligence
or breach of federal or state law responsibilities by
Evercore, with respect to any task performed by
Evercore pursuant to the Applicants’ exemption
request.
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methodology alternatives consistent
with the VFC Program.11
In a written report dated August 28,
2017, Evercore stated that it reviewed
the correction methodology alternatives
outlined in the VFC Program and
considered the specific facts and
circumstances related to the Covered
Transactions. Based on the foregoing,
Evercore determined that the correction
methodologies utilized to correct the
transactions: (a) Were sufficient to
return each affected Non-ERISA Plan
Client to at least the position it would
have been in had the Covered
Transaction not occurred; (b) provided
Non-ERISA Plan Clients with a greater
benefit than other correction
methodology alternatives, consistent
with the VFC Program; and (c) were
properly applied based on a review of
a representative sample of the
corrections selected at random by
Evercore.
12. The Applicants describe the
specific correction methodologies as
follows:
(a) With respect to JPMIM Sales
Transactions involving securities that
had not been repurchased by the NonERISA Plan Clients, the corrections
were calculated based on Section
7.4(b)(2)(ii) of the VFC Program, which
permits monetary correction if an
independent fiduciary determines the
plan will receive a greater benefit than
it would from rescission. The correction
formula used was the sum of: (i) The
excess, if any, of the fair market value
of the shares on the correction date over
the shares’ original sale price; plus (ii)
any transaction costs paid by the NonERISA Plan Client in the original
transaction; plus (iii) lost earnings on
the amounts described in (i) and (ii)
calculated from the original sale date to
the correction date.12
11 Evercore sold its institutional trust and
independent fiduciary business to Newport Group
Inc. and its subsidiary, Newport Trust Company
(NTC). Since October 19, 2017, NTC has served as
the independent fiduciary in connection with this
proposed exemption. The Department understands
that the non-indemnification (for negligence)
provision in Evercore’s engagement letter applies to
NTC, because NTC became the successor of
Evercore as a result of the acquisition.
12 The Applicants represent that the lost earnings
were calculated in accordance with Section 5(b)(5)
of the VFC Program. The Department notes that, in
general terms, the amount of ‘‘lost earnings’’
calculable under Section 5(b)(5) approximates the
amount that would have been earned by the
affected plan on the ‘‘Principal Amount,’’ but for
the breach. The Applicants state that to ensure that
the affected Non-ERISA Plan Clients (who had sold
shares to JPM Counterparties) would receive the
greatest benefit through the correction process, if
the fair market value of the shares on the correction
date was greater than the original sale price of the
shares, that excess amount was paid to the NonERISA Plan Client. The Applicants state that
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(b) With respect to the JPMIM
Purchase Transactions where the NonERISA Plan Clients continued to hold
the purchased securities prior to the
date of correction, the correction
amount was calculated based on Section
7.4(a)(2)(i) of the VFC Program. Under
this correction procedure, the NonERISA Plan Clients were entitled to sell
the securities for a price equal to the
greater of: The fair market value of the
shares on the correction date; or the sum
of: (i) The original purchase price; plus
(ii) any transaction costs (e.g.,
commissions) paid by the Non-ERISA
Plan Clients in the original purchase;
plus (iii) lost earnings on the items (i)
and (ii) from the original purchase date
to the correction date.
(c) With respect to the JPMS
Brokerage Sales Transactions, the
methodology used was the same
methodology that was used for the
JPMIM Sales Transactions.
(d) With respect to the JPMS
Brokerage Purchase Transactions for
which the Non-ERISA Plan Clients
subsequently sold the purchased
securities before the correction date, the
correction amount was calculated based
on Section 7.4(a)(2)(i) of the VFC
Program.13 Under that methodology, the
correction amount was determined by
applying the following calculation: (i)
The excess, if any, of A over B
(described below), plus (ii) lost earnings
on such excess calculated from the prior
resale date to the correction date. For
purposes of this calculation, A is the
greater of: (i) The fair market value of
the shares at the time of resale; and (ii)
the original purchase price plus any
transaction costs paid by the client in
the original purchase, plus any lost
earnings on the original purchase price
and transaction costs calculated from
the original purchase date to the resale
date, and B is the price received for the
shares when they were resold, less any
transaction costs paid by the client in
the resale.
13. The Applicants represent that the
Covered Transactions were inadvertent
and that all of the Covered Transactions
were executed at fair market value and
achieved best execution. In this regard,
the Covered Transactions were
conducted using trading systems and
procedures designed to result in the
technically, under the VFC Program rules,
JPMorgan was not required to pay lost earnings on
the excess amount, but to ensure that the affected
Non-ERISA Plan Clients would receive the greatest
benefit, JPMorgan determined that it was
appropriate to pay lost earnings on the excess
amount.
13 Securities purchased in a prohibited
transaction were matched to securities of the same
type subsequently sold on a last-in-first-out basis.
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trades being conducted at prices that
were as favorable as possible to the NonERISA Plan Clients under prevailing
market conditions, and were in fact
conducted at prices no less favorable to
the Non-ERISA Plan Clients than the
prices the financial advisers could have
obtained for the Non-ERISA Plan Clients
by conducting trades in arm’s-length
transactions with third-party market
participants. In addition, the Applicants
state that there were no identifiable
profits to the JPM Counterparties in any
of the Covered Transactions, because all
of the securities traded were liquid
securities that JPMorgan and its
affiliates regularly hold in inventory,
deal in, or make a market in.
14. The Applicants represent that they
have not taken advantage of the relief
provided by the VFC Program and PTE
2002–51 for the three (3) years before
the date of the Applicants’ submission
of the VFC Program Applications, and
that the Covered Transactions were not
part of an agreement, arrangement or
understanding designed to benefit a
disqualified person.
15. Based on the foregoing, as
required by ERISA Section 408(a), the
Department has tentatively determined
that the proposed exemption is:
(a) Administratively feasible because,
among other things, the corrections
were performed in a manner consistent
with the VFC Program and verified by
Evercore, an independent fiduciary
acting on behalf of the non-ERISA Plan
Clients;
(b) In the interests of the affected NonERISA Plan Clients and their owners
and beneficiaries because, among other
things, the Non-ERISA Plan Clients
were put in at least as favorable a
position as they would have been had
the Covered Transaction not occurred;
and
(c) Protective of the rights of the
owners and beneficiaries of the NonERISA Plan Clients because, among
other things, the Covered Transactions
have been effectively unwound
consistent with the requirements set
forth in the VFC Program.
Notice to Interested Persons
Notice of the proposed exemption
will be provided to all interested
persons within 60 days of the
publication of the notice of proposed
exemption in the Federal Register. The
notice will be provided to all interested
persons in the manner agreed upon by
the Applicants and the Department and
will contain a copy of the notice of
proposed exemption as published in the
Federal Register and a supplemental
statement, as required pursuant to 29
CFR 2570.43(a)(2). The supplemental
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57449
statement will inform interested persons
of their right to comment on and to
request a hearing with respect to the
pending exemption. All written
comments and/or requests for a hearing
must be received by the Department
within 90 days of the date of publication
of this proposed exemption in the
Federal Register.
All comments will be made available
to the public. Warning: If you submit a
comment, EBSA recommends that you
include your name and other contact
information in the body of your
comment, but DO NOT submit
information that you consider to be
confidential, or otherwise protected
(such as a Social Security number or an
unlisted phone number) or confidential
business information that you do not
want publicly disclosed. All comments
may be posted on the internet and can
be retrieved by most internet search
engines.
General Information
The attention of interested persons is
directed to the following:
(1) The fact that a transaction is the
subject of an exemption under ERISA
Section 408(a) and/or Code Section
4975(c)(2) does not relieve a fiduciary or
other party in interest or disqualified
person from certain other provisions of
ERISA and/or the Code, including any
prohibited transaction provisions to
which the exemption does not apply
and the general fiduciary responsibility
provisions of ERISA Section 404, which,
among other things, require a fiduciary
to discharge his duties respecting the
plan solely in the interest of the
participants and beneficiaries of the
plan and in a prudent fashion in
accordance with ERISA Section
404(a)(1)(b); nor does it affect the
requirement of Code Section 401(a)that
requires plans to operate for the
exclusive benefit of the employees of
the employer maintaining the plan and
their beneficiaries;
(2) Before an exemption may be
granted under ERISA Section 408(a)
and/or Code Section 4975(c)(2), the
Department must find that the
exemption is administratively feasible,
in the interests of the plan and of its
participants and beneficiaries, and
protective of the rights of participants
and beneficiaries of the plan;
(3) The proposed exemption, if
granted, will be supplemental to, and
not in derogation of, any other
provisions of ERISA and/or the Code,
including statutory or administrative
exemptions and transitional rules.
Furthermore, the fact that a transaction
is subject to an administrative or
statutory exemption is not dispositive of
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whether the transaction is in fact a
prohibited transaction; and
(4) The proposed exemption, if
granted, will be subject to the express
condition that the material facts and
representations contained in each
application are true and complete, and
that each application accurately
describes all material terms of the
transaction which is the subject of the
exemption.
Proposed Exemption
Based on the facts and representations
set forth in the application, the
Department is considering granting an
exemption under the authority of Code
Section 4975(c)(2) and in accordance
with the Department’s prohibited
transaction exemption procedures set
forth in 29 CFR part 2570, subpart B (76
FR 66637, October 27, 2011), as follows:
Section I: Covered Transactions
If the proposed exemption is granted,
the sanctions resulting from the
application of Code Section 4975, by
reason of Code Section 4975(c)(1)(A),
(D) and (E), shall not apply, effective
December 14, 2010, until September 16,
2013, to certain principal trades
involving J.P. Morgan Securities LLC
(JPMS), J.P. Morgan Investment
Management Inc. (JPMIM), J.P. Morgan
Securities (JPMS Brokerage), and Chase
Wealth Management (CWM)
(collectively, the Applicants), and
certain of their client plans that are
subject to Code Section 4975 but
covered by not Title I of ERISA (the
Non-ERISA Plan Clients). These
principal transactions resulted in the
Non-ERISA Plan Clients purchasing or
selling securities from or to the
Applicants (the Covered Transactions,
as defined in Section II, below).
This exemption is subject to the
conditions set forth below in Sections III
and IV.
Section II: Definition of Covered
Transaction
For purposes of this proposed
exemption, the term ‘‘Covered
Transaction’’ means:
(a) 3,989 trades of securities issued by
third-parties that were executed on a
principal basis for certain JPMSsponsored wrap fee programs under the
Chase Wealth Management line of
business (i.e., the CWM Wrap Program)
on or about July 27 and July 30, 2012.
Of these trades: (i) 3,985 involved sales
by a Non-ERISA Plan Client to a
counterparty affiliated with JPMorgan (a
JPM Counterparty), with an aggregate
sales price of $2,682,332.34 (i.e., the
JPMIM Sales Transactions); and (ii) four
involved purchases by a Non-ERISA
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16:50 Oct 14, 2021
Jkt 256001
Plan Client from a JPM Counterparty
(i.e. the JPMIM Purchase Transactions)
and the purchased shares, with an
aggregate purchase price of $46,940.55,
had not been re-sold by the Non-ERISA
Plan Client as of the date the
transactions were corrected; and
(b) 15 trades involving JPMS
Brokerage that were executed on a
principal basis on December 14, 2010,
January 13, 2011, February 3, 2012,
December 31, 2012, August 22, 2013
and September 16, 2013. Of these
trades: (a) Two involved sales of
securities by a Non-ERISA Plan Client to
a JPM Counterparty (i.e., the JPMS
Brokerage Sales Transactions), with an
aggregate sales price of $61,854.54; and
(b) 13 involved purchases of securities
by a Non-ERISA Plan Client from a JPM
Counterparty (i.e., the JPMS Brokerage
Purchase Transactions), with an
aggregate purchase price of $557,232.08,
that were purchased and subsequently
sold by the Non-ERISA Plan Client
before the prohibited transactions were
discovered.
Section III: Specific Conditions
(a) The Applicants corrected the
Covered Transactions in a manner that
was: (1) Consistent with the relevant
requirements set forth in the
Department’s Voluntary Fiduciary
Correction Program (the VFC Program);
and (2) consistent with the Applicants’
corrections of similar prohibited
transactions involving its ERISA plan
clients, as described in their VFC
Program applications, dated December
31, 2014 (the VFC Program
Applications);
(b) The Applicants received ‘‘no
action letters’’ from the Department in
connection with their VFC Program
Applications;
(c) An independent fiduciary,
Evercore Trust Company, N.A.
(Evercore), reviewed the Applicants’
corrections of the Covered Transactions;
(d) Evercore confirmed that the
methods utilized to correct the Covered
Transactions were properly applied to
the Covered Transactions and sufficient
to return each affected Non-ERISA Plan
Client to at least the same position it
would have been in had the Covered
Transactions not occurred.
(e) The Non-ERISA Plan Clients did
not pay any identifiable transaction
costs with respect to the Covered
Transactions;
(f) The Applicants promptly credited
or issued a check to each Non-ERISA
Plan Client to whom a corrective
payment was due after discovering the
Covered Transactions;
(g) The Covered Transactions were
conducted using trading systems and
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Frm 00044
Fmt 4703
Sfmt 4703
procedures designed to result in trades
being conducted at prices that are as
favorable as possible to the Non-ERISA
Plan Clients under prevailing market
conditions, and were in fact conducted
at terms and prices no less favorable to
the Non-ERISA Plan Clients than the
prices the financial advisers could have
obtained for the Non-ERISA Plan Clients
by conducting trades in arm’s-length
transactions with third-party market
participants;
(h) The Covered Transactions were
not part of an agreement, arrangement or
understanding designed to benefit a
disqualified person, as defined in Code
Section 4975(e)(2);
(i) The Applicants did not take
advantage of the relief provided by the
VFC Program and Prohibited
Transaction Exemption 2002–51 for
three (3) years prior to the date of the
Applicants’ submission of the VFC
Program Applications; 14
(j) The Applicants and their affiliates
did not receive any identifiable direct or
indirect compensation in connection
with the Covered Transactions;
(k) The JPM Counterparties to the
Non-ERISA Plan Clients did not receive
any identifiable direct or indirect profit
from the Covered Transactions;
(l) The Covered Transactions were
inadvertent, executed at fair market
value, and achieved best execution;
(m) All of the securities traded were
liquid securities that JPMorgan and its
affiliates regularly held in inventory,
dealt in, or made a market in; and
(n) No contractual provisions
purported to give Evercore or Newport
Trust Company (i.e., NTC) a right to
indemnification, in whole or part, by a
party related to the Applicants, for
negligence or breach of federal or state
law responsibilities by Evercore or NTC,
with respect to any task performed by
Evercore or NTC pursuant to the
Applicants’ exemption request.
(o) All of the facts and representations
set forth in the Summary of Facts and
Representations are true and accurate.
Section IV: General Conditions
(a) The Applicants maintain, or cause
to be maintained, for a period of six (6)
years from the date of any Covered
Transaction such records as are
necessary to enable the persons
described in Section IV(b)(1) to
determine whether the conditions of
this exemption have been met, except
that:
(1) A separate prohibited transaction
shall not be considered to have occurred
if the records are lost or destroyed
14 67 FR 70623 (Nov. 25, 2002), as amended, 71
FR 20135 (April 19, 2006).
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Federal Register / Vol. 86, No. 197 / Friday, October 15, 2021 / Notices
before the end of the six-year period due
to circumstances beyond the control of
Applicants; and
(2) No disqualified person with
respect to a Non-ERISA Plan Client,
other than the Applicants, shall be
subject to excise taxes imposed by Code
Section 4975 if such records are not
maintained or made available for
examination as required by Section
IV(b)(1), above.
(b)(1) Except as provided in Section
IV(b)(2), the records referred to in
Section IV(a) are unconditionally
available at their customary location for
examination during normal business
hours by:
(A) Any duly authorized employee or
representative of the Department, the
Internal Revenue Service, or the
Securities and Exchange Commission;
(B) Any fiduciary of any Non-ERISA
Plan Client that engaged in a Covered
Transaction, or any duly authorized
employee or representative of such
fiduciary; or
(C) Any owner or beneficiary of a
Non-ERISA Plan Client that engaged in
a Covered Transaction or a
representative of such owner or
beneficiary.
(2) None of the persons described in
Sections IV(b)(1)(B) and (C) shall be
authorized to examine the Applicants’
trade secrets or privileged or
confidential commercial and financial
information.
(3) If the Applicants refuse to disclose
records referred to in Section IV(a) to
any persons described in Sections
IV(b)(1)(B), and (C) on the basis that
such information is exempt from
disclosure, the Applicants shall provide
a written notice advising such persons
of the reasons for the refusal and that
the Department may request such
information by the close of the thirtieth
(30th) day following their request.
Effective Date: The proposed
exemption, if granted, will be in effect
from December 14, 2010 until
September 16, 2013.
Signed at Washington, DC, this 27th day of
September, 2021.
G. Christopher Cosby,
Acting Director, Office of Exemption
Determinations, Employee Benefits Security
Administration, U.S. Department of Labor.
[FR Doc. 2021–21578 Filed 10–14–21; 8:45 am]
BILLING CODE 4510–29–P
VerDate Sep<11>2014
16:50 Oct 14, 2021
Jkt 256001
DEPARTMENT OF LABOR
Agency Information Collection
Activities; Submission for OMB
Review; Comment Request; Mine
Mapping and Records of Opening,
Closing, and Reopening of Mines
Notice of availability; request
for comments.
ACTION:
The Department of Labor
(DOL) is submitting this Mine Safety
and Health Administration (MSHA)sponsored information collection
request (ICR) to the Office of
Management and Budget (OMB) for
review and approval in accordance with
the Paperwork Reduction Act of 1995
(PRA). Public comments on the ICR are
invited.
DATES: The OMB will consider all
written comments that agency receives
on or before November 15, 2021.
ADDRESSES: Written comments and
recommendations for the proposed
information collection should be sent
within 30 days of publication of this
notice to www.reginfo.gov/public/do/
PRAMain. Find this particular
information collection by selecting
‘‘Currently under 30-day Review—Open
for Public Comments’’ or by using the
search function.
Comments are invited on: (1) Whether
the collection of information is
necessary for the proper performance of
the functions of the Department,
including whether the information will
have practical utility; (2) if the
information will be processed and used
in a timely manner; (3) the accuracy of
the agency’s estimates of the burden and
cost of the collection of information,
including the validity of the
methodology and assumptions used; (4)
ways to enhance the quality, utility and
clarity of the information collection; and
(5) ways to minimize the burden of the
collection of information on those who
are to respond, including the use of
automated collection techniques or
other forms of information technology.
FOR FURTHER INFORMATION CONTACT:
Crystal Rennie by telephone at 202–
693–0456 or by email at DOL_PRA_
PUBLIC@dol.gov.
SUPPLEMENTARY INFORMATION: This
information collection protects miners
by assuring that up-to-date, accurate
mine maps contain the information
needed to clarify the best alternatives
for action during an emergency
operation. Also, coal mine operators
routinely use maps to create safe and
effective development plans.
Mine maps are schematic depictions
of critical mine infrastructure, such as
SUMMARY:
PO 00000
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Fmt 4703
Sfmt 4703
57451
water, power, transportation,
ventilation, and communication
systems. Using accurate, up-to-date
maps during a disaster, mine emergency
personnel can locate refuges for miners
and identify sites of explosion potential;
they can know where stationary
equipment was placed, where ground
was secured, and where they can best
begin a rescue operation. During a
disaster, maps can be crucial to the
safety of the emergency personnel who
must enter a mine to begin a search for
survivors. Mine maps may describe the
current status of an operating mine or
provide crucial information about a
long-closed mine that is being reopened.
Coal mine operators use map
information to develop safe and
effective plans and to help determine
hazards before beginning work in areas,
such as abandoned underground mines
or the worked-out and inaccessible areas
of an active underground or surface
mine. Abandoned mines or inaccessible
areas of active mines may have water
inundation potentials and explosive
levels of methane or lethal gases. If an
operator, unaware of the hazards, were
to mine into such an area, miners could
be killed or seriously injured. For
additional substantive information
about this ICR, see the related notice
published in the Federal Register on
July 21, 2021 (86 FR 38504).
This information collection is subject
to the PRA. A Federal agency generally
cannot conduct or sponsor a collection
of information, and the public is
generally not required to respond to an
information collection, unless the OMB
approves it and displays a currently
valid OMB Control Number. In addition,
notwithstanding any other provisions of
law, no person shall generally be subject
to penalty for failing to comply with a
collection of information that does not
display a valid OMB Control Number.
See 5 CFR 1320.5(a) and 1320.6.
DOL seeks PRA authorization for this
information collection for three (3)
years. OMB authorization for an ICR
cannot be for more than three (3) years
without renewal. The DOL notes that
information collection requirements
submitted to the OMB for existing ICRs
receive a month-to-month extension
while they undergo review.
Agency: DOL–MSHA.
Title of Collection: Mine Mapping and
Records of Opening, Closing, and
Reopening of Mines.
OMB Control Number: 1219–0120.
Affected Public: Private Sector:
Businesses or other for-profits.
Total Estimated Number of
Respondents: 580.
Total Estimated Number of
Responses: 1,191.
E:\FR\FM\15OCN1.SGM
15OCN1
]]>Agencies
[Federal Register Volume 86, Number 197 (Friday, October 15, 2021)]
[Notices]
[Pages 57446-57451]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-21578]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Exemption Application No. D-11963]
Notice of Proposed Exemption Involving J.P. Morgan Securities
LLC, J.P. Morgan Investment Management Inc., J.P. Morgan Securities,
and Chase Wealth Management (Collectively, the Applicants); Located in
Weehawken, New Jersey
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Notice of Proposed Exemption.
-----------------------------------------------------------------------
SUMMARY: This document gives notice of a proposed individual exemption
from certain prohibited transaction restrictions of the Internal
Revenue Code of 1986, as amended (the Code) involving certain principal
trades previously caused or executed by J.P. Morgan Securities LLC and
J.P. Morgan Investment Management Inc. for certain non-ERISA plan
clients.
DATES: If granted, the exemption will be in effect from December 14,
2010 until September 16, 2013. Written comments and a request for a
public hearing on the proposed exemption should be submitted to the
Department by January 13, 2022.
ADDRESSES: All written comments and requests for a hearing should be
sent to the Employee Benefits Security Administration (EBSA), Office of
Exemption Determinations, Attention: Application No. D-11963 via email
to [email protected] or online through the Federal eRulemaking Portal:
https://www.regulations.gov. Any such comments or requests should be
sent by the end of the scheduled comment period. The application for
exemption and the comments received will be available for public
inspection in the Public Disclosure Room of the Employee Benefits
Security Administration, U.S. Department of Labor, Room N-1515, 200
Constitution Avenue NW, Washington, DC 20210. See SUPPLEMENTARY
INFORMATION below for additional information regarding comments.
FOR FURTHER INFORMATION CONTACT: Ms. Anna Vaughan of the Department,
telephone (202) 693-8565. (This is not a toll-free number.)
SUPPLEMENTARY INFORMATION: As described in further detail below, J.P.
Morgan Securities LLC (JPMS) and J.P. Morgan Investment Management Inc.
(JPMIM) previously caused or executed prohibited principal transactions
on behalf of certain plans covered by the Employee Retirement Income
Security Act of 1974 (ERISA plans) and plans not covered by ERISA (non-
ERISA plans). The Applicants corrected the ERISA plan-related
prohibited transactions, which were reviewed and confirmed by an
independent fiduciary, and received ``no action letters under the
Department's Voluntary Fiduciary Compliance Program (the VFC
Program).\1\
---------------------------------------------------------------------------
\1\ See 67 FR 15062 (Mar. 28, 2002), as updated at 71 FR 20262
(Apr. 19, 2006).
---------------------------------------------------------------------------
The VFC Program is not available for corrections of non-ERISA plan-
related prohibited transactions; therefore, the Applicants are seeking
exemptive relief for their correction of prohibited principal
transactions involving the Applicants and their non-ERISA plan clients
(the Covered Transactions). The Applicants adhered to the same
conditions to correct the Covered Transactions that they applied to
correct the transactions involving their ERISA plan clients under the
VFC Program.
Comments
In light of the current circumstances surrounding the COVID-19
pandemic caused by the novel coronavirus which may result in disruption
to the receipt of comments by U.S. Mail or hand delivery/courier,
persons are encouraged to submit all comments electronically and not to
submit paper copies. Comments should state the nature of the person's
interest in the proposed exemption and the manner in which the person
would be adversely affected by the exemption, if granted. Any person
who may be adversely affected by an exemption can request a hearing on
the exemption. A request for a hearing must state: (1) The name,
address, telephone number, and email address of the person making the
request; (2) the nature of the person's interest in the exemption and
the manner in which the person would be adversely affected by the
exemption; and (3) a statement of the issues to be addressed and a
general description of the evidence to be presented at the hearing. The
Department will grant a request for a hearing made in accordance with
the requirements above where a hearing is necessary to fully explore
material factual issues identified by the person requesting the
hearing. A notice of such hearing shall be published by the Department
in the Federal Register. The Department may decline to hold a hearing
if: (1) The request for the hearing does not meet the requirements
above; (2) the only issues identified for exploration at the hearing
are matters of law; or (3) the factual issues identified can be fully
explored through the submission of evidence in written (including
electronic) form. Warning: All comments received will be included in
the public record without change and may be made available online at
https://www.regulations.gov, including any personal information
provided, unless the comment includes information claimed to be
confidential or other information whose disclosure is restricted by
statute. If you submit a comment, EBSA recommends that you include your
name and other contact information in the body of your comment, but DO
NOT submit information that you consider to be confidential, or
otherwise protected (such as Social Security number or an unlisted
phone number) or confidential business information that you do not want
publicly disclosed. However, if EBSA cannot read your comment due to
technical difficulties and cannot contact you for clarification, EBSA
might not be able to consider your comment. Additionally, the https://www.regulations.gov website is an ``anonymous access'' system, which
means EBSA will not know your identity or contact information unless
[[Page 57447]]
you provide it in the body of your comment. If you send an email
directly to EBSA without going through https://www.regulations.gov, your
email address will be automatically captured and included as part of
the comment that is placed in the public record and made available on
the internet.
Background
This document contains a notice of proposed exemption that, if
granted, would provide exemptive relief from the sanctions resulting
from the application of Code Section 4975, by reason of Code Section
4975(c)(1)(A) and (D)-(E). The proposed exemption has been requested by
JPMS and its affiliates pursuant to Code Section 4975(c)(2) in
accordance with the Department's prohibited transaction exemption
procedures set forth in 29 CFR part 2570, subpart B (76 FR 66637,
66644, October 27, 2011). Effective December 31, 1978, Section 102 of
the Reorganization Plan No. 4 of 1978, 5 U.S.C. App 1 (1996)
transferred the authority of the Secretary of the Treasury to issue
administrative exemptions under Code Section 4975(c)(2) to the
Secretary of Labor. Accordingly, this notice of proposed exemption is
being issued solely by the Department.
Summary of Facts and Representations 2
---------------------------------------------------------------------------
\2\ The Department notes that the availability of this
exemption, if granted, is subject to the express condition that the
material facts and representations contained in application D-11963
are true and complete, and accurately describe all material terms of
the transactions covered by the exemption. If there is any material
change in a transaction covered by the exemption, or in a material
fact or representation described in the application, the exemption
will cease to apply as of the date of the change.
---------------------------------------------------------------------------
1. JPMorgan Chase & Co. (JPMorgan) is a global financial services
firm that provides investment banking, financial services for consumers
and small businesses, commercial banking, financial transaction
processing and asset management.
2. JPMS, an indirect wholly-owned subsidiary of JPMorgan, is a
broker-dealer registered with the U.S. Securities and Exchange
Commission (the SEC) and supervised by the Financial Industry
Regulatory Authority, Inc. In addition, JPMS is an investment advisor
regulated by the SEC as a ``dual registrant.'' JPMS serves as an
investment advisor under investment advisory programs offered by its
retail brokerage lines of business, including the J.P. Morgan
Securities division of JPMS (JPMS Brokerage). JPMS Brokerage serves as
an investment adviser to ERISA-covered plans (the ERISA Plan Clients)
and accounts and plans subject to Code Section 4975 that are not
covered by ERISA (the Non-ERISA Plan Clients). JPMS' ERISA and Non-
ERISA Plan Clients participate in certain JPMS-sponsored wrap fee
programs under the Chase Wealth Management (CWM) line of business (the
CWM Wrap Program). Clients of these programs generally pay a bundled
fee to the program sponsor and receive custody, trade execution,
investment management, and other services.
3. JPMIM, an indirect wholly-owned subsidiary of JPMorgan, is an
investment advisor registered with the SEC. JPMIM serves as an
investment adviser for ERISA and Non-ERISA Plan Clients participating
in the CWM Wrap Program. During the time period relevant to this
proposed exemption, JPMIM was the overlay manager for one program and
one of the offered portfolio managers of another program.
Covered Transactions Involving JPMIM
4. According to the Applicants, a JPMorgan employee conducted a
routine monitoring of accounts in early July 2012, and noticed that a
particular account number was not enabled to trade on JPM-X, an
``alternative trading system'' owned and operated by JPMS. According to
the Applicants, the employee did not recognize the account was
associated with JPMIM or an affiliate. Instead, the employee had seen
documentation indicating that the account was associated with a non-
affiliated third party. On July 27, 2012, the employee authorized the
account for activation in JPM-X, including engaging in principal
trading.
The Applicants state that, on July 30, 2012, the head of the
Electronic Client Services (ECS) group noticed the JPM-X trading flow
associated with the recently-activated account number had an account
name that included a ``jpmim'' prefix. Based on that information, the
head of the ECS group immediately de-activated the account for
principal trading in JPM-X. The principal trades executed for the CWM
Wrap Program were discovered a few months later in connection with a
routine exam of JPMS by the SEC (the SEC Exam of JPMS). In total, 3,989
trades of securities issued by third-parties were executed for the CWM
Wrap Program on a principal basis. Regarding these trades: (a) 3,985
were sales by a Non-ERISA Plan Client to a counterparty affiliated with
JPMorgan (a JPM Counterparty), with an aggregate sales price of
$2,682,332.34 (the JPMIM Sales Transactions); \3\ and (b) four were
purchases by a Non-ERISA Plan Client from a JPM Counterparty (the JPMIM
Purchase Transactions) with an aggregate purchase price of $46,940.55.
The purchased shares had not been re-sold by the Non-ERISA Plan Client
as of the date the transactions were corrected.\4\ The Applicants
represent that JPMIM and JPMS endeavored to correct the prohibited
transactions as quickly as possible in the manner described in
paragraph 11 below.
---------------------------------------------------------------------------
\3\ These trades involved 3,784 Non-ERISA Plan Clients.
\4\ These trades involved two Non-ERISA Plan Clients.
---------------------------------------------------------------------------
5. The Applicants represent that the trades did not result in any
commissions being paid by the Non-ERISA Plan Clients to JPMIM or its
affiliates. Rather, because the trades were executed under the CWM Wrap
Program, no identifiable transaction compensation was paid in
connection with either the JPMIM Sales Transactions or the JPMIM
Purchase Transactions. The Applicants represent that JPMIM is no longer
enabled to execute trades on JPM-X.
Covered Transactions Involving JPMS Brokerage
6. According to the Applicants, on December 14, 2010, January 13,
2011, February 3, 2012, December 31, 2012, August 22, 2013 and
September 16, 2013, 15 trades involving JPMS Brokerage were mistakenly
executed on a principal basis, although not on JPM-X. The Applicants
state that JPMS Brokerage's compliance department discovered the
Covered Transactions in connection with the SEC Exam of JPMS. Of the 15
trades: (a) Two were sales of securities,\5\ where each sale was by a
Non-ERISA Plan Client to a JPM Counterparty (the JPMS Brokerage Sales
Transactions), with an aggregate sales price of $61,854.54; and (b) 13
were purchases of securities by a Non-ERISA Plan Client from a JPM
Counterparty (the JPMS Brokerage Purchase Transactions), with an
aggregate purchase price of $557,232.08.\6\ The purchased securities
were subsequently sold by the Non-ERISA Plan Client before the
prohibited transactions were discovered. The Applicants state that JPMS
Brokerage endeavored to correct the prohibited transactions as quickly
as possible in the manner described in paragraph 11 below.
---------------------------------------------------------------------------
\5\ These trades involved two Non-ERISA Plan Clients.
\6\ These trades involved seven Non-ERISA Plan Clients.
---------------------------------------------------------------------------
7. The Applicants represent that the trades in question did not
result in any
[[Page 57448]]
commissions being paid by the Non-ERISA Plan Clients to JPMS or its
affiliates. Rather, the trades were executed under the CWM Wrap
Program. Further, no identifiable transaction compensation was paid in
connection with either the JPMS Brokerage Sales Transactions or the
JPMS Brokerage Purchase Transactions.
Other Prohibited Transactions, as Corrected Under the VFC Program
8. The Applicants represent that the errors and mistakes that gave
rise to prohibited transactions involving the Non-ERISA Plan Clients
also gave rise to prohibited transactions involving certain ERISA Plan
clients of JPMIM and JPMS (the ERISA Plan Prohibited Transactions). The
Applicants state that JPMIM and JPMS Brokerage corrected the ERISA Plan
Prohibited Transactions pursuant to the requirements set forth in the
VFC Program.\7\ The Applicants represents that they did not intend to
engage in the prohibited transactions and have implemented policies and
procedures to prevent future occurrences of such (or similar)
transactions.
---------------------------------------------------------------------------
\7\ The Department notes that the VFC Program encourages the
full correction of certain breaches of fiduciary responsibility and
the restoration to participants and beneficiaries of losses
resulting from those breaches. Persons potentially liable for
certain types of ERISA fiduciary breaches may avoid certain civil
action and penalties by fulfilling the Program's requirements.
Several categories of transactions covered by the VFC Program also
qualify for excise tax relief under class exemption 2002-51, if the
conditions therein are met. See 67 FR 70623 (Nov. 25, 2002) as
amended at 71 FR 20135 (Apr. 19 2006).
---------------------------------------------------------------------------
JPMIM and JPMS filed VFC Program Applications 30-105378 and 30-
105379, respectively, on December 31, 2014, and filed a supplement to
those applications on July 1, 2015 (collectively, the VFC Program
Applications). The Applicants received ``no action'' letters from the
Department dated September 14, 2015, in connection with their VFC
Program Applications for the ERISA Plan Prohibited Transactions.\8\
---------------------------------------------------------------------------
\8\ In general terms, the Department may issue a ``no action''
letter to an applicant under the VFC Program, with respect to the
breach identified in the application, if the applicable requirements
of the VFC Program are satisfied.
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9. The Applicants state that although the Non-ERISA Plan Prohibited
Transactions were entered into under similar circumstances as the ERISA
Plan Prohibited Transactions (and in some cases pursuant to the same
block trade) and corrected using the same methodology used to correct
the ERISA Plan Prohibited Transactions, the Non-ERISA Plan Prohibited
Transactions are ineligible for relief under the VFC Program and PTE
2002-51, as amended, because they involved transactions with Non-ERISA
Plan Clients that are not covered under Title I of ERISA.\9\
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\9\ In granting an amendment to PTE 2002-51, and in response to
a comment to the proposed amendment, the Department noted, ``the
grant of this amendment does not foreclose [the Department's] future
consideration of individual exemption requests for transactions that
are outside the scope of relief provided by both the VFC Program and
the class exemption under circumstances when, for example a
financial institution received a no action letter applicable only to
plans subject to the Program for a transaction(s) that involved both
plans and such IRAs.'' See 71 FR 20135 at 37.
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Prohibited Transaction Analysis
10. Absent an exemption, the Covered Transactions violated several
prohibited transaction provisions, because JPMS or JPMIM caused Covered
Transactions to occur that resulted in JPMS or JPMIM receiving money or
securities from the Non-ERISA Plan Client. Specifically, the Covered
Transactions constitute: (a) A sale or exchange of property (i.e.,
money or securities) between a Non-ERISA Plan Client and a JPM
Counterparty (a disqualified person) prohibited by Code Section
4975(c)(1)(A); (b) a transfer of plan assets (i.e., money or
securities) from the Non-ERISA Plan Client to a JPM Counterparty (a
disqualified person) prohibited by Code Section 4975(c)(1)(D); and (c)
an act undertaken by JPMS or JPMIM to deal with plan assets in its own
interest or for its own account prohibited by Code Section
4975(c)(1)(E).
Covered Transaction Corrections
11. The Applicants represent that the Covered Transactions were
corrected using the same applicable methodologies described in the VFC
Program that they used to correct similar prohibited transactions that
occurred with their ERISA clients. The Applicants engaged an
independent fiduciary, Evercore Trust Company, N.A. (Evercore),\10\ to
determine: Whether the correction methodologies were properly applied,
including verifying the market value of the securities at the time the
prohibited transactions occurred; and whether the correction
methodologies provided the Non-ERISA Plan Clients with a greater
benefit than other correction methodology alternatives consistent with
the VFC Program.\11\
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\10\ This proposed exemption requires, among other things, that
there were no contractual provisions purporting to entitle Evercore,
in whole or in part, to indemnification by the Applicants, or by a
party related to the Applicants, for negligence or breach of federal
or state law responsibilities by Evercore, with respect to any task
performed by Evercore pursuant to the Applicants' exemption request.
\11\ Evercore sold its institutional trust and independent
fiduciary business to Newport Group Inc. and its subsidiary, Newport
Trust Company (NTC). Since October 19, 2017, NTC has served as the
independent fiduciary in connection with this proposed exemption.
The Department understands that the non-indemnification (for
negligence) provision in Evercore's engagement letter applies to
NTC, because NTC became the successor of Evercore as a result of the
acquisition.
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In a written report dated August 28, 2017, Evercore stated that it
reviewed the correction methodology alternatives outlined in the VFC
Program and considered the specific facts and circumstances related to
the Covered Transactions. Based on the foregoing, Evercore determined
that the correction methodologies utilized to correct the transactions:
(a) Were sufficient to return each affected Non-ERISA Plan Client to at
least the position it would have been in had the Covered Transaction
not occurred; (b) provided Non-ERISA Plan Clients with a greater
benefit than other correction methodology alternatives, consistent with
the VFC Program; and (c) were properly applied based on a review of a
representative sample of the corrections selected at random by
Evercore.
12. The Applicants describe the specific correction methodologies
as follows:
(a) With respect to JPMIM Sales Transactions involving securities
that had not been repurchased by the Non-ERISA Plan Clients, the
corrections were calculated based on Section 7.4(b)(2)(ii) of the VFC
Program, which permits monetary correction if an independent fiduciary
determines the plan will receive a greater benefit than it would from
rescission. The correction formula used was the sum of: (i) The excess,
if any, of the fair market value of the shares on the correction date
over the shares' original sale price; plus (ii) any transaction costs
paid by the Non-ERISA Plan Client in the original transaction; plus
(iii) lost earnings on the amounts described in (i) and (ii) calculated
from the original sale date to the correction date.\12\
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\12\ The Applicants represent that the lost earnings were
calculated in accordance with Section 5(b)(5) of the VFC Program.
The Department notes that, in general terms, the amount of ``lost
earnings'' calculable under Section 5(b)(5) approximates the amount
that would have been earned by the affected plan on the ``Principal
Amount,'' but for the breach. The Applicants state that to ensure
that the affected Non-ERISA Plan Clients (who had sold shares to JPM
Counterparties) would receive the greatest benefit through the
correction process, if the fair market value of the shares on the
correction date was greater than the original sale price of the
shares, that excess amount was paid to the Non-ERISA Plan Client.
The Applicants state that technically, under the VFC Program rules,
JPMorgan was not required to pay lost earnings on the excess amount,
but to ensure that the affected Non-ERISA Plan Clients would receive
the greatest benefit, JPMorgan determined that it was appropriate to
pay lost earnings on the excess amount.
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[[Page 57449]]
(b) With respect to the JPMIM Purchase Transactions where the Non-
ERISA Plan Clients continued to hold the purchased securities prior to
the date of correction, the correction amount was calculated based on
Section 7.4(a)(2)(i) of the VFC Program. Under this correction
procedure, the Non-ERISA Plan Clients were entitled to sell the
securities for a price equal to the greater of: The fair market value
of the shares on the correction date; or the sum of: (i) The original
purchase price; plus (ii) any transaction costs (e.g., commissions)
paid by the Non-ERISA Plan Clients in the original purchase; plus (iii)
lost earnings on the items (i) and (ii) from the original purchase date
to the correction date.
(c) With respect to the JPMS Brokerage Sales Transactions, the
methodology used was the same methodology that was used for the JPMIM
Sales Transactions.
(d) With respect to the JPMS Brokerage Purchase Transactions for
which the Non-ERISA Plan Clients subsequently sold the purchased
securities before the correction date, the correction amount was
calculated based on Section 7.4(a)(2)(i) of the VFC Program.\13\ Under
that methodology, the correction amount was determined by applying the
following calculation: (i) The excess, if any, of A over B (described
below), plus (ii) lost earnings on such excess calculated from the
prior resale date to the correction date. For purposes of this
calculation, A is the greater of: (i) The fair market value of the
shares at the time of resale; and (ii) the original purchase price plus
any transaction costs paid by the client in the original purchase, plus
any lost earnings on the original purchase price and transaction costs
calculated from the original purchase date to the resale date, and B is
the price received for the shares when they were resold, less any
transaction costs paid by the client in the resale.
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\13\ Securities purchased in a prohibited transaction were
matched to securities of the same type subsequently sold on a last-
in-first-out basis.
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13. The Applicants represent that the Covered Transactions were
inadvertent and that all of the Covered Transactions were executed at
fair market value and achieved best execution. In this regard, the
Covered Transactions were conducted using trading systems and
procedures designed to result in the trades being conducted at prices
that were as favorable as possible to the Non-ERISA Plan Clients under
prevailing market conditions, and were in fact conducted at prices no
less favorable to the Non-ERISA Plan Clients than the prices the
financial advisers could have obtained for the Non-ERISA Plan Clients
by conducting trades in arm's-length transactions with third-party
market participants. In addition, the Applicants state that there were
no identifiable profits to the JPM Counterparties in any of the Covered
Transactions, because all of the securities traded were liquid
securities that JPMorgan and its affiliates regularly hold in
inventory, deal in, or make a market in.
14. The Applicants represent that they have not taken advantage of
the relief provided by the VFC Program and PTE 2002-51 for the three
(3) years before the date of the Applicants' submission of the VFC
Program Applications, and that the Covered Transactions were not part
of an agreement, arrangement or understanding designed to benefit a
disqualified person.
15. Based on the foregoing, as required by ERISA Section 408(a),
the Department has tentatively determined that the proposed exemption
is:
(a) Administratively feasible because, among other things, the
corrections were performed in a manner consistent with the VFC Program
and verified by Evercore, an independent fiduciary acting on behalf of
the non-ERISA Plan Clients;
(b) In the interests of the affected Non-ERISA Plan Clients and
their owners and beneficiaries because, among other things, the Non-
ERISA Plan Clients were put in at least as favorable a position as they
would have been had the Covered Transaction not occurred; and
(c) Protective of the rights of the owners and beneficiaries of the
Non-ERISA Plan Clients because, among other things, the Covered
Transactions have been effectively unwound consistent with the
requirements set forth in the VFC Program.
Notice to Interested Persons
Notice of the proposed exemption will be provided to all interested
persons within 60 days of the publication of the notice of proposed
exemption in the Federal Register. The notice will be provided to all
interested persons in the manner agreed upon by the Applicants and the
Department and will contain a copy of the notice of proposed exemption
as published in the Federal Register and a supplemental statement, as
required pursuant to 29 CFR 2570.43(a)(2). The supplemental statement
will inform interested persons of their right to comment on and to
request a hearing with respect to the pending exemption. All written
comments and/or requests for a hearing must be received by the
Department within 90 days of the date of publication of this proposed
exemption in the Federal Register.
All comments will be made available to the public. Warning: If you
submit a comment, EBSA recommends that you include your name and other
contact information in the body of your comment, but DO NOT submit
information that you consider to be confidential, or otherwise
protected (such as a Social Security number or an unlisted phone
number) or confidential business information that you do not want
publicly disclosed. All comments may be posted on the internet and can
be retrieved by most internet search engines.
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under ERISA Section 408(a) and/or Code Section 4975(c)(2) does not
relieve a fiduciary or other party in interest or disqualified person
from certain other provisions of ERISA and/or the Code, including any
prohibited transaction provisions to which the exemption does not apply
and the general fiduciary responsibility provisions of ERISA Section
404, which, among other things, require a fiduciary to discharge his
duties respecting the plan solely in the interest of the participants
and beneficiaries of the plan and in a prudent fashion in accordance
with ERISA Section 404(a)(1)(b); nor does it affect the requirement of
Code Section 401(a)that requires plans to operate for the exclusive
benefit of the employees of the employer maintaining the plan and their
beneficiaries;
(2) Before an exemption may be granted under ERISA Section 408(a)
and/or Code Section 4975(c)(2), the Department must find that the
exemption is administratively feasible, in the interests of the plan
and of its participants and beneficiaries, and protective of the rights
of participants and beneficiaries of the plan;
(3) The proposed exemption, if granted, will be supplemental to,
and not in derogation of, any other provisions of ERISA and/or the
Code, including statutory or administrative exemptions and transitional
rules. Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of
[[Page 57450]]
whether the transaction is in fact a prohibited transaction; and
(4) The proposed exemption, if granted, will be subject to the
express condition that the material facts and representations contained
in each application are true and complete, and that each application
accurately describes all material terms of the transaction which is the
subject of the exemption.
Proposed Exemption
Based on the facts and representations set forth in the
application, the Department is considering granting an exemption under
the authority of Code Section 4975(c)(2) and in accordance with the
Department's prohibited transaction exemption procedures set forth in
29 CFR part 2570, subpart B (76 FR 66637, October 27, 2011), as
follows:
Section I: Covered Transactions
If the proposed exemption is granted, the sanctions resulting from
the application of Code Section 4975, by reason of Code Section
4975(c)(1)(A), (D) and (E), shall not apply, effective December 14,
2010, until September 16, 2013, to certain principal trades involving
J.P. Morgan Securities LLC (JPMS), J.P. Morgan Investment Management
Inc. (JPMIM), J.P. Morgan Securities (JPMS Brokerage), and Chase Wealth
Management (CWM) (collectively, the Applicants), and certain of their
client plans that are subject to Code Section 4975 but covered by not
Title I of ERISA (the Non-ERISA Plan Clients). These principal
transactions resulted in the Non-ERISA Plan Clients purchasing or
selling securities from or to the Applicants (the Covered Transactions,
as defined in Section II, below).
This exemption is subject to the conditions set forth below in
Sections III and IV.
Section II: Definition of Covered Transaction
For purposes of this proposed exemption, the term ``Covered
Transaction'' means:
(a) 3,989 trades of securities issued by third-parties that were
executed on a principal basis for certain JPMS-sponsored wrap fee
programs under the Chase Wealth Management line of business (i.e., the
CWM Wrap Program) on or about July 27 and July 30, 2012. Of these
trades: (i) 3,985 involved sales by a Non-ERISA Plan Client to a
counterparty affiliated with JPMorgan (a JPM Counterparty), with an
aggregate sales price of $2,682,332.34 (i.e., the JPMIM Sales
Transactions); and (ii) four involved purchases by a Non-ERISA Plan
Client from a JPM Counterparty (i.e. the JPMIM Purchase Transactions)
and the purchased shares, with an aggregate purchase price of
$46,940.55, had not been re-sold by the Non-ERISA Plan Client as of the
date the transactions were corrected; and
(b) 15 trades involving JPMS Brokerage that were executed on a
principal basis on December 14, 2010, January 13, 2011, February 3,
2012, December 31, 2012, August 22, 2013 and September 16, 2013. Of
these trades: (a) Two involved sales of securities by a Non-ERISA Plan
Client to a JPM Counterparty (i.e., the JPMS Brokerage Sales
Transactions), with an aggregate sales price of $61,854.54; and (b) 13
involved purchases of securities by a Non-ERISA Plan Client from a JPM
Counterparty (i.e., the JPMS Brokerage Purchase Transactions), with an
aggregate purchase price of $557,232.08, that were purchased and
subsequently sold by the Non-ERISA Plan Client before the prohibited
transactions were discovered.
Section III: Specific Conditions
(a) The Applicants corrected the Covered Transactions in a manner
that was: (1) Consistent with the relevant requirements set forth in
the Department's Voluntary Fiduciary Correction Program (the VFC
Program); and (2) consistent with the Applicants' corrections of
similar prohibited transactions involving its ERISA plan clients, as
described in their VFC Program applications, dated December 31, 2014
(the VFC Program Applications);
(b) The Applicants received ``no action letters'' from the
Department in connection with their VFC Program Applications;
(c) An independent fiduciary, Evercore Trust Company, N.A.
(Evercore), reviewed the Applicants' corrections of the Covered
Transactions;
(d) Evercore confirmed that the methods utilized to correct the
Covered Transactions were properly applied to the Covered Transactions
and sufficient to return each affected Non-ERISA Plan Client to at
least the same position it would have been in had the Covered
Transactions not occurred.
(e) The Non-ERISA Plan Clients did not pay any identifiable
transaction costs with respect to the Covered Transactions;
(f) The Applicants promptly credited or issued a check to each Non-
ERISA Plan Client to whom a corrective payment was due after
discovering the Covered Transactions;
(g) The Covered Transactions were conducted using trading systems
and procedures designed to result in trades being conducted at prices
that are as favorable as possible to the Non-ERISA Plan Clients under
prevailing market conditions, and were in fact conducted at terms and
prices no less favorable to the Non-ERISA Plan Clients than the prices
the financial advisers could have obtained for the Non-ERISA Plan
Clients by conducting trades in arm's-length transactions with third-
party market participants;
(h) The Covered Transactions were not part of an agreement,
arrangement or understanding designed to benefit a disqualified person,
as defined in Code Section 4975(e)(2);
(i) The Applicants did not take advantage of the relief provided by
the VFC Program and Prohibited Transaction Exemption 2002-51 for three
(3) years prior to the date of the Applicants' submission of the VFC
Program Applications; \14\
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\14\ 67 FR 70623 (Nov. 25, 2002), as amended, 71 FR 20135 (April
19, 2006).
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(j) The Applicants and their affiliates did not receive any
identifiable direct or indirect compensation in connection with the
Covered Transactions;
(k) The JPM Counterparties to the Non-ERISA Plan Clients did not
receive any identifiable direct or indirect profit from the Covered
Transactions;
(l) The Covered Transactions were inadvertent, executed at fair
market value, and achieved best execution;
(m) All of the securities traded were liquid securities that
JPMorgan and its affiliates regularly held in inventory, dealt in, or
made a market in; and
(n) No contractual provisions purported to give Evercore or Newport
Trust Company (i.e., NTC) a right to indemnification, in whole or part,
by a party related to the Applicants, for negligence or breach of
federal or state law responsibilities by Evercore or NTC, with respect
to any task performed by Evercore or NTC pursuant to the Applicants'
exemption request.
(o) All of the facts and representations set forth in the Summary
of Facts and Representations are true and accurate.
Section IV: General Conditions
(a) The Applicants maintain, or cause to be maintained, for a
period of six (6) years from the date of any Covered Transaction such
records as are necessary to enable the persons described in Section
IV(b)(1) to determine whether the conditions of this exemption have
been met, except that:
(1) A separate prohibited transaction shall not be considered to
have occurred if the records are lost or destroyed
[[Page 57451]]
before the end of the six-year period due to circumstances beyond the
control of Applicants; and
(2) No disqualified person with respect to a Non-ERISA Plan Client,
other than the Applicants, shall be subject to excise taxes imposed by
Code Section 4975 if such records are not maintained or made available
for examination as required by Section IV(b)(1), above.
(b)(1) Except as provided in Section IV(b)(2), the records referred
to in Section IV(a) are unconditionally available at their customary
location for examination during normal business hours by:
(A) Any duly authorized employee or representative of the
Department, the Internal Revenue Service, or the Securities and
Exchange Commission;
(B) Any fiduciary of any Non-ERISA Plan Client that engaged in a
Covered Transaction, or any duly authorized employee or representative
of such fiduciary; or
(C) Any owner or beneficiary of a Non-ERISA Plan Client that
engaged in a Covered Transaction or a representative of such owner or
beneficiary.
(2) None of the persons described in Sections IV(b)(1)(B) and (C)
shall be authorized to examine the Applicants' trade secrets or
privileged or confidential commercial and financial information.
(3) If the Applicants refuse to disclose records referred to in
Section IV(a) to any persons described in Sections IV(b)(1)(B), and (C)
on the basis that such information is exempt from disclosure, the
Applicants shall provide a written notice advising such persons of the
reasons for the refusal and that the Department may request such
information by the close of the thirtieth (30th) day following their
request.
Effective Date: The proposed exemption, if granted, will be in
effect from December 14, 2010 until September 16, 2013.
Signed at Washington, DC, this 27th day of September, 2021.
G. Christopher Cosby,
Acting Director, Office of Exemption Determinations, Employee Benefits
Security Administration, U.S. Department of Labor.
[FR Doc. 2021-21578 Filed 10-14-21; 8:45 am]
BILLING CODE 4510-29-P
