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]

Download as PDF 57446 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: VerDate Sep<11>2014 16:50 Oct 14, 2021 Jkt 256001 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: http:// 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). PO 00000 Frm 00040 Fmt 4703 Sfmt 4703 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 http:// 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 http:// www.regulations.gov website is an ‘‘anonymous access’’ system, which means EBSA will not know your identity or contact information unless E:\FR\FM\15OCN1.SGM 15OCN1 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 http:// 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. VerDate Sep<11>2014 16:50 Oct 14, 2021 Jkt 256001 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 PO 00000 Frm 00041 Fmt 4703 Sfmt 4703 57447 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. E:\FR\FM\15OCN1.SGM 15OCN1 57448 Federal Register / Vol. 86, No. 197 / Friday, October 15, 2021 / Notices 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. VerDate Sep<11>2014 16:50 Oct 14, 2021 Jkt 256001 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. PO 00000 Frm 00042 Fmt 4703 Sfmt 4703 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 E:\FR\FM\15OCN1.SGM 15OCN1 Federal Register / Vol. 86, No. 197 / Friday, October 15, 2021 / Notices (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. VerDate Sep<11>2014 16:50 Oct 14, 2021 Jkt 256001 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 PO 00000 Frm 00043 Fmt 4703 Sfmt 4703 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 E:\FR\FM\15OCN1.SGM 15OCN1 57450 Federal Register / Vol. 86, No. 197 / Friday, October 15, 2021 / Notices 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 VerDate Sep<11>2014 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 PO 00000 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). E:\FR\FM\15OCN1.SGM 15OCN1 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 Frm 00045 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]


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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.

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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: 
http://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\
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    \1\ See 67 FR 15062 (Mar. 28, 2002), as updated at 71 FR 20262 
(Apr. 19, 2006).
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    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 
http://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 http://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 http://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
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    \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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    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.
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    \3\ These trades involved 3,784 Non-ERISA Plan Clients.
    \4\ These trades involved two Non-ERISA Plan Clients.
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    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.
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    \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.
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    \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).
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    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\
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    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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