# paul.eckert@wilmerhale.com

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/agency%3Asec%3A5c3a69cc90d1d105

## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

W ILMERHALE

Paul R. Eckert
+1 202 663 6537 (I)
+1 202 663 6363 (I)
paul.eckert@wilmerhale.com

December 11, 2015

BYE-MAIL
Sebastian Gomez Abero, Esq.
Chief, Office of Small Business Policy
Division of Corporation Finance
U.S. Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Re :

In the Matter of JPMorgan Chase Bank, N.A.

Dear Mr. Gomez Abero:
We are writing on behalf of JPMorgan Chase Bank, N.A. ("JPMCB"). JPMCB requests,
pursuant to Rule 506( d)(2)(ii) of Regulation D promulgated under the Securities Act of 1933
("Securities Act"), a waiver of any disqualification from relying on the exemption under Rule
506 of Regulation D that may arise as a result of the entry by the U.S. Commodity Futures
Trading Commission (the "CFTC") of an administrative order against JPMCB (the "CFTC
Order").

BACKGROUND
JPMCB has engaged in settlement discussions with the staff of the CFTC in connection
with an investigation by the CFTC of a violation of Section 4o(l)(B) of the Commodity
Exchange Act ("CEA"). As a result of these discussions, JPMCB has agreed to the entry of the
CFTC Order.
The CFTC Order finds that JPMCB violated Section 4o(l)(B) of the CEA and Regulation
4.41 by failing to fully disclose certain conflicts of interest to clients of the wealth management
business of J.P. Morgan Chase & Co. 's ("JPMC") U.S. Private Bank (the "U.S. Private Bank").
Specifically, the CFTC Order finds that JPMCB failed to fully disclose to certain clients with
discretionary investment management accounts ("IM accounts") its preferences for investing the
assets of IM accounts and certain private funds held in IM accounts (collectively, "Discretionary
Portfolios") in certain commodity pools or exempt pools, namely (a) investment funds operated
by JPMorgan Asset Management ("Proprietary Funds") and (b) third-party managed hedge funds
that shared management and/or performance fees with an affiliate of JPMCB.

Wilmer Cutler Pickering Hale and Dorr LLP, 1875 Pennsylvania Avenue NW, Washington, DC 20006
Beijing

Berlin

Boston

Brussels

Denver

Frankfurt

London

Los Angeles

New York

Oxford

Palo Alto

Washington

W ILMERHALE
Sebastian Gomez Abero, Esq.
December 11, 2015
Page2

With regard to the preference for Proprietary Funds, the CFTC Order finds that JPMCB
disclosed to IM account clients that it had a conflict of interest when it invested Discretionary
Portfolio assets in Proprietary Funds (because such investments increased revenue to JPMCB
affiliates). In addition, the CFTC Order finds that IM account clients were informed of which
funds were included within the Discretionary Portfolios, as well as the amount of assets held in
each fund by means of, for example, periodic account statements and client reviews. The CFTC
Order also finds that prior to February 2011, JPMCB disclosed to IM account clients its
preference for investing Discretionary Portfolio assets in certain Proprietary Funds, namely
mutual funds, in what was entitled "JPMorgan general investment principles regarding the use of
JPMorgan funds and external managers" (the "Investment Principles"). The Investment
Principles were distributed to relevant clients through various means including the incorporation
into the JPMorgan Fund Disclosure Statement ("FDS"), a document provided to new IM account
clients and to certain clients with existing IM accounts through an annual mailing. However, in
January 2011, JPMCB removed the Investment Principles (including the language stating "we
prefer to use JPMorgan-affiliated managers") from the FDS while amending the FDS for reasons
unrelated to the language concerning JPMCB' s preference for Proprietary Funds. In addition,
the CFTC Order finds that from at least 2008 through January 2014, JPMCB did not disclose to
certain IM account clients its preference for investing relevant Discretionary Portfolio assets in
certain other Proprietary Funds, namely hedge funds, operated by JPMorgan Asset Management.
With regard to the preference for third-party managed hedge funds that shared
management and/or performance fees ("retrocessions"), the CFTC Order finds that JPMCB
disclosed to its IM account clients that its affiliates may receive retrocessions in connection with
investments in third-party hedge funds. However, JPMCB did not disclose to IM account clients
its preference for retrocession-paying third-party hedge fund managers in certain Discretionary
Portfolios until August 2015, when it added additional language to certain client documentation
regarding the extent to which such funds are used in certain Discretionary Portfolios.
The CFTC Order requires JPMCB to comply with its undertaking to pay disgorgement of
$60 million, which obligation can be satisfied by payment of the disgorgement to the U.S .
Securities and Exchange Commission ("SEC" or the "Commission") by JPMCB and an affiliate
in a related and concurrent settlement with the SEC. 1 The CFTC Order directs JPMCB to ceaseand-desist from violating Section 4o(l)(B) of the CEA and Regulation 4.41. Additionally,
JPMCB shall pay $40 million as a civil penalty to the CFTC.
1

The conduct of JPMCB at issue in the CFTC Order is essentially identical to the conduct of JPMCB at issue in the
SEC order, where the SEC found that JPMCB violated Sections l 7(a)(2) and l 7(a)(3) of the Securities Act ("SEC
Order"). The SEC Order also finds that J.P. Morgan Securities LLC ("JPMS") violated certain provisions of the
Investment Advisers Act of 1940 in its role as adviser to certain discretionary accounts that are not within the scope
of the CFTC Order. The SEC Order does not disqualify JPMCB and JPMS from relying on the exemption from
registration provided by Rule 506 of Regulation 0 . The CFTC Order, which is limited only to JPMCB, is the sole
impetus for the present waiver request.

W ILMERHALE
Sebastian Gomez Abero, Esq.
December 11, 2015
Page 3

DISCUSSION
JPMCB understands that the entry of the CFTC Order will disqualify it from relying on
the exemption from registration provided by Rule 506 of Regulation D. JPMCB is concerned
that, should it be deemed to be an issuer, predecessor of the issuer, affiliated issuer, general
partner or managing member of the issuer, beneficial owner of20 percent or more of an issuer's
outstanding voting equity securities, promoter, investment manager of a pooled investment fund,
compensated solicitor of purchasers, or to be acting in any other capacity described in Rule 506,
JPMCB as well as the other issuers with which JPMCB is associated in one of the above-listed
capacities and which rely upon or may rely upon this offering exemption when issuing securities
would be prohibited from doing so.
The Commission has the authority to waive the Rule 506 exemption disqualification upon
a showing of good cause that such disqualification is not necessary under the circumstances. See
17 C.F.R. § 230.506(d)(2)(ii).
For the reasons described below, JPMCB respectfully requests that the Commission
waive any disqualifying effects that the CFTC Order may have under Rule 506.

1. Nature and Duration of the Violation
The CFTC Order does not find that any clients of JPMCB were financially harmed by the
disclosure inadequacies. The conduct described in the CFTC Order relates to the scope of
disclosures provided to U.S. Private Bank clients with Discretionary Portfolios regarding
potential conflicts of interest arising from JPMCB' s selection of certain investment funds that are
commodity pools or exempt pools for Discretionary Portfolios in the United States. 2
Although the conduct covered by the CFTC Order arose in the context of the offer or sale
of securities, the violations charged in the CFTC Order are of a Section of the CEA and a related
Regulation that are non-scienter-based and are satisfied by negligent conduct. The CFTC did not
find any intentional or reckless violations of the CEA. As the Division of Corporation Finance
has stated, an issuer's burden to show good cause that a waiver is justified is significantly greater
when a matter involves a criminal conviction or scienter-based conduct; neither applies to
JPMCB in the instant matter.
2

While not reflected in the CFTC Order, the relevant Discretionary Portfolios had only limited indirect exposure to
commodity interests through investments in certain investment funds and, with respect to funds managed by
affiliates of JPMCB, there were only two such funds with a commodities-based strategy previously used in the
Discretionary Portfolios. Among the subset of Discretionary Portfolios that invested in either of those two funds,
the investments in the relevant affiliated funds accounted for a very small portion of total client portfolio assets, at
times less than 2%. Yet, as described below, the effect ofa disqualification would limit JPMCB and its subsidiaries'
ability to provide services globally.

W ILMERHALE
Sebastian Gomez Abero, Esq.
December 11, 2015
Page 4

Each of the disclosure inadequacies described in the CFTC Order spanned a different
number of years, with the longest period spanning from 2008 until August 20 15. However, with
respect to a preference for affiliated mutual funds, the CFTC Order finds that any inadequate
disclosure by JPMCB to Discretionary Portfolio clients was limited to an approximately three
year period following the removal of language on a preference from the J.P. Morgan Fund
Disclosure Statement in February 20 11 and preceding the re-introduction of such language in
early 20 14. In addition, as noted above, clients did receive certain disclosure on the conflicts at
issue and were informed of which funds were in their Discretionary Portfolios, as well as the
amount of assets held in each affiliated fund and third-party fund through, for example, periodic
account statements and client reviews. Remedial actions, as described below, have been
implemented to ensure that the disclosure issues do not arise again.

2. Responsibility for the Violation
The CFTC did not name any individuals in the CFTC Order. The CFTC Order contains
no findings that the conduct described in the CFTC Order occurred at the direction of senior
management of JPMCB and no findings of any misconduct by the board of directors of JPMCB.
The CFTC did not find that any of JPMCB' s directors or senior management were aware of any
of the disclosure inadequacies and ignored them. The disclosure inadequacies stem from certain
line of business and process issues rather than from misconduct of any specific individuals. As
shown below, substantial actions have been taken to address and remedy those issues.

3. Remedial Steps
JPMCB has taken several steps to ensure that the practices that the CFTC Order asserts
were previously not disclosed adequately are disclosed in full to clients of the U.S . Private Bank
in relevant client documentation and regulatory disclosure documents for the Discretionary
Portfolios. The U.S. Private Bank line of business has enhanced training and education for
relevant personnel regarding the practices and related potential conflicts. In addition, it has
enhanced its overall conflicts of interest framework, the procedures for language changes in
relevant client documentation and regulatory disclosure documents for the Discretionary
Portfolios, and the conflicts-related policies and procedures, as described below.
A.

Enhanced Communication to Clients

Beginning in late 2013, JPMCB enhanced conflicts disclosures in documents provided to
clients of the U.S. Private Bank regarding JPMCB's use of affiliated funds in the Discretionary
Portfolios managed by JPMCB. Notably, JPMCB re-introduced language specifically
articulating a preference for affiliated managers in certain circumstances.

WILMERHALE
Sebastian Gomez Abero, Esq.
December 11, 2015
Page 5

In 2015, JPMCB also enhanced disclosure to clients of the U.S. Private Bank regarding
the use of hedge funds in Discretionary Portfolios managed by JPMCB for which its brokerdealer affiliates act as placement agent and earn fees for placement and other ongoing services
(fees sometimes referred to as "retrocessions"). The enhanced disclosure states that receipt of
such fees involves a conflict of interest and provides additional information regarding the extent
to which hedge funds are used in the relevant Discretionary Portfolios. The disclosure states, for
example, that, to the extent a discretionary investment management account is to be invested
directly in hedge funds, JPMCB typically chooses to invest the account only in hedge funds that
pay or for which sponsors pay fees for placement agent services to a broker-dealer affiliate. The
process for providing this enhanced disclosure to relevant clients began in early August.
B.

Education and Training

In addition to these enhancements to documentation provided to clients, training
materials used with U.S. Private Bank representatives were enhanced in 20 14 to describe in
greater detail the use of affiliated funds in the Discretionary Portfolios and related conflicts of
interest, including a preference for affiliated managers. Similarly, in connection with the roll-out
in 2015 of the enhanced disclosures regarding fees earned for placement agent services as
referenced above, relevant personnel for the U.S. Private Bank were educated about the
enhanced disclosures and provided information on JPMCB's use in relevant Discretionary
Portfolios of hedge funds from which an affiliated broker-dealer earns fees for placement agent
services.
C.
Disclosure

Other Control Enhancements Related to Conflicts of Interest & Related

Beginning in 2014, J.P. Morgan's Asset Management line of business, which is inclusive
of the U.S. Private Bank, created and implemented an enhanced conflicts of interest framework
("COI Framework") as a component of its Risk Control Self-Assessment ("RCSA") process.
The enhanced COI Framework provides a disciplined and structured approach to conflicts. The
COI Framework created an ongoing process to both identify conflicts in a particular line of
business and assess controls surrounding those conflicts of interest. The process includes the
following steps: ( 1) identification of potential conflicts of interest (including specifically those
associated with the use of affiliated funds); (2) assessment of the policies, procedures,
governance and disclosures, where applicable, surrounding each category of conflict; (3)
identification of gaps or weaknesses; and (4) remediation of such gaps or weaknesses. This
conflicts assessment encompasses the activities of JPMCB as manager of the Discretionary
Portfolios for clients of the U.S. Private Bank, and is part of the ongoing RCSA process.
In addition, the U.S. Private Bank has enhanced the procedures for language changes in
relevant client documentation and regulatory disclosure documents for the Discretionary

W ILMERHALE
Sebastian Gomez Abero, Esq.
December 11, 2015
Page 6

Portfolios. In particular, the U.S. Private Bank has implemented Client Documentation and
Regulatory Disclosure Procedures that call for the engagement of different business and
functional groups in the review and approval of language changes - including additions and
deletions - to relevant client documentation and regulatory disclosure documents. The
procedures assign clear roles and responsibilities among the business, legal, and compliance
functions. The procedures also require a Document Owner and a designated Process Owner,
who is charged with coordinating input from the business, legal, and compliance functions .
Changes to language that have been approved are coordinated by an Implementation Owner, who
is responsible for implementing final language in a particular document.
Furthermore, prior to entry of the CFTC Order, an independent compliance consultant
("ICC") was engaged to review the U.S. Private Bank policies and procedures regarding
disclosure of potential conflicts posed by the use of affiliated funds or retrocession-paying thirdparty private funds in Discretionary Portfolios including any preferences for such funds, as well
as to review training of client-facing employees regarding the same. As described above, the
U.S. Private Bank has implemented Client Documentation and Regulatory Disclosure
Procedures. The ICC 3 reviewed the then-draft procedures and recommended that, in addition to
promoting consistency among all relevant documents in a particular line of business and all
related documents across lines of business, the procedure should also promote consistency within
a document. This recommendation has been incorporated into the procedures. The ICC further
observed that there may be other documents, such as marketing materials, that should be
consistent with client and regulatory disclosure documents and recommended that the then-draft
procedures be revised to identify other relevant materials or documents that should be considered
for review during the process. This recommendation has also been incorporated into the
procedures. In addition, the ICC provided comments on the then-draft Managed Strategy
Selection Policy, including a recommendation that the Policy include a cross-reference to the
various procedures used to implement the Policy and that a Compliance Program document
include cross-references to such Policy. The Policy and Program documents have been amended
accordingly.
4. Material and Disproportionate Impact on JPMCB and its Subsidiaries and Affiliates,
Customers and Third Parties if Waiver is Denied
A disqualification of JPMCB from using (or participating in transactions using) the
exemption under Rule 506 resulting from the entry of the CFTC Order would have a material
adverse impact on JPMCB and certain of its subsidiaries and affiliates, its customers, and the
third parties that have retained, or may retain in the future, JPMCB and other entities with which

3

The ICC also made recommendations relating to other J.P. Morgan lines of business. Those recommendations,
which are not described in this letter because they do not implicate JPMCB, have also been implemented.

W ILMERHALE
Sebastian Gomez Abero, Esq.
December 11, 2015
Page 7

JPMCB is associated in one of the roles specified in Rule 506(d) in connection with transactions
that rely on this exemption.
JPMCB and certain of its subsidiaries would be disproportionately harmed by a
disqualification because they have participated, and expect to continue to participate, as an
issuer, investment manager, or placement agent in a large number of global securities offerings
under Rule 506, and their inability to do so could result in the cessation or severe curtailment of
certain private fund activities of the global Private Bank (which includes both J.P. Morgan's U.S.
Private Bank and its International Private Bank) and JPMCB's Rule 506 structured notes
business. As described below, JPMCB's numerous customers would be disadvantaged in terms
of their ability to have access to certain investment funds and structured notes that meet their
investment preferences. These customers would face the burden of finding alternative
investments if such offerings are delayed, restricted, or abandoned as a result of a
disqualification of JPMCB . In addition, third-party and affiliated issuers in Rule 506
transactions that have hired JPMCB to participate in such offerings in certain roles would be
disadvantaged by a disqualification of JPMCB because such a disqualification would have a
negative impact on their capital raising activities by eliminating an important distribution
channel for their securities which could cause immediate and significant disruption in their
ability to access a large number of investors.
A.
Activities

Effects of Disqualification on Investment Manager and Placement Agent

A disqualification of JPMCB from acting as an investment manager and placement agent
for issuers engaging in Rule 506 offerings, arising from the CFTC Order, would result in the loss
of significant current and future business and could place JPMCB at a competitive disadvantage
relative to its peer institutions. An integral part of the business of the Private Bank is its ability
to participate - through JPMCB and certain of its subsidiaries and affiliates - in transactions that
rely on Rule 506, including a significant number of offerings of private investment funds. The
Private Bank makes available to its clients an array of private investment funds that rely on Rule
506 for their offerings. Currently, JPMCB and its affiliates have over 28,000 private banking
customer accounts worldwide that hold approximately 80,000 customer investments in private
funds.
JPMCB currently acts as the investment manager to approximately 14 private funds,
specifically, the Global Access Portfolio funds, that rely on Rule 506, representing total assets of
approximately $6.1 billion and approximately 4,300 customer investments. In addition, certain
JPMCB branches and subsidiaries act or have historically acted as placement agents in
connection with global Rule 506 offerings for more than 180 private funds, including private
equity funds, hedge funds, and real estate funds, that offer securities through the Private Bank.
These private funds have been offered and sold, through JPMCB and affiliated placement agents,

WILMERHALE
Sebastian Gomez Abero, Esq.
December 11, 2015
Page 8

to accounts of customers in numerous countries and represents over $55 billion in assets placed.
Over 10,000 Private Bank customer investments in private funds that rely on Rule 506 have been
placed by JPMCB and certain of its branches and subsidiaries.
Effects on JPMCB, its Branches, and its Subsidiaries

If JPMCB is subject to a Rule 506(d) disqualification, third-party and J.P. Morganaffiliated private funds that engage in Rule 506 offerings and that have entered into placement
agent agreements (and in the case of J.P. Morgan-affiliated private funds, investment
management agreements) with JPMCB would be unable to offer their securities in reliance on
Rule 506, and would be required to either offer securities under an alternative exemption from
registration or seek to replace JPMCB as investment manager and/or placement agent, or
otherwise terminate their relationship with JPMCB in the other roles described in Rule 506(d).
These issuers may not be able to rely on other offering exemptions provided in the Securities Act
and current market practice favors the use of Rule 506 in certain private placement offerings
because it provides the benefit of a safe harbor for an exempt offering. As a result, any such
issuers that are currently conducting a Rule 506 offering would likely terminate their
relationships with JPMCB (and as described below, potentially all J.P. Morgan affiliates that
serve as placement agents). As of the date hereof, there are three private equity funds, for which
JPMCB is acting as placement agent, engaging in current offerings of their securities under Rule
506 expected to close in the coming months. Closings of these offerings are currently scheduled
for December 2015 and January 2016. These three offerings are expected to represent
approximately $280 million in assets placed by JPMCB and approximately 280 customer
investments. Further, a robust pipeline of issuers are in active negotiations to engage J.P.
Morgan as placement agent or investment manager and would not be able to engage JPMCB for
future Rule 506 offerings.
A disqualification of JPMCB would not only result in a significant loss of business for
JPMCB and its branches and subsidiaries, it could also negatively impact other JPMC entities,
such as JPMS, which acts as placement agent in Rule 506 offerings. In offerings that are
conducted globally under Rule 506, JPMCB, through certain of its branches and subsidiaries,
would act as a placement agent outside of the United States, while JPMS, a U.S. registered
broker-dealer, would be responsible for the selling activity in the United States. A
disqualification of JPMCB would cause such branches and subsidiaries of JPMCB to have to
cease acting as placement agents in Rule 506 offerings. Further, while JPMS would not be
subject to disqualification as a result of the CFTC Order, in choosing a distribution channel,
issuers would likely choose to engage one firm that has the ability to participate in all aspects of
the Rule 506 offering rather than engaging JPMS solely for the domestic portion of the offering.

WILMERHALE
Sebastian Gomez Abero, Esq.
December 11, 20 15
Page 9

Effects on Customers
A disqualification of JPMCB would negatively affect its customers who invest in private
fund investments. As noted above, currently JPMCB acts as the investment manager to
approximately 14 private funds representing approximately 4,300 customer investments. In
addition, approximately 10,000 Private Bank customer investments in private funds that rely on
Rule 506 have been placed by JPMCB and certain of its branches and subsidiaries.
In addition, as noted above, at least three private equity funds that are relying on Rule
506 for issuing their securities to customers will have closings in the coming months. JPMCB is
a placement agent for these offerings. If JPMCB becomes disqualified, its customers would be
unable to have their subscriptions fulfilled and would be unable to invest in these funds,
disrupting such customers' investment plans and requiring them to seek alternative investment
options which are not readily available.

If a disqualification of JPMCB were to occur during the offering period of certain
continuously offered private funds, like hedge funds, the customers who invested in the fund
prior to the disqualification could find themselves as investors in a fund that is unable to accept
new customers and raise new capital. Without being able to continue to raise new capital,
existing investors in the funds and the funds themselves would not be able to make new
investments to grow the funds and spread costs among more investors.
A disqualification of JPMCB would cause customers in many countries outside of the
United States to not be able to invest in most, if not all, private equity and real estate funds
offered through the Global Private Bank. Therefore, these customers would lose access to two of
the three alternative fund asset classes that are typically part of the investment allocation options
and currently comprise an important component of a balanced portfolio allocation. Customers
may not be able to attain the performance and growth envisioned in their accounts because
customers would not be able to allocate their capital among the private equity and real estate
allocation options and would not have access to viable substitutions. In addition, as discussed
above, third-party issuers likely would prefer to engage one firm that can participate in both the
domestic and offshore aspects of an offering, and would therefore be less likely to engage J.P.
Morgan for their Rule 506 offerings. This could result in reducing the number of available
investment options for the Private Bank's domestic customers thereby removing their access to
these asset classes as well. Customers who may have long-standing relationships with the
Private Bank would not have access to some of the Private Bank's most impactful ideas in the
diversified portfolio context. In addition, certain customers may have selected JPMCB due to its
extensive market exposure and expertise to remain current with the market landscape and
specific trends, or because it can provide combined services, such as investment allocation
services and execution services, to achieve cost savings and/or other conveniences associated
with the combined services of a single firm. If JPMCB is disqualified, these customers would

W ILMERHALE
Sebastian Gomez Abero, Esq.
December 11, 2015
Page 10

face the burden of having to find alternative investments or to undertake the burdensome
administrative process of establishing an account with another firm in order to access similar
investment opportunities and services.
Many of the private fund investment options made available to J.P. Morgan Private Bank
customers are not readily accessible to such non-institutional investors outside of an investment
platform. Investment platforms at competitors may make some options available, but such
platforms may not replicate the array of options available at the Private Bank. Therefore, a
disqualification of JPMCB likely would cause certain customers to lose access to certain private
fund investments.

Effects on Other Issuers
As noted above, a disqualification of JPMCB would likely result in the termination by
third-party and J.P. Morgan-affiliated issuers that rely on Rule 506 of their placement agent
engagements with JPMCB. Since 2014, at least 16 third-party private equity funds and 12 J.P.
Morgan-affiliated private equity funds have engaged or are in discussions to engage JPMCB as
placement agent. JPMCB or certain of its branches or subsidiaries have placed or are projected
to place in excess of $3 billion in commitments for these 28 private equity funds with over 1,600
customer investments. Three third-party private equity funds are currently offering securities
under Rule 506 to customers and have not yet had their first closing on commitments raised by
JPMCB and its subsidiaries. One third-party private equity fund and two affiliated private equity
funds intend to launch their funds in early 2016. These six private equity funds are expected to
raise assets in excess of $600 million from over 500 customer investments. In addition, JPMCB
acts as placement agent for three open-end real estate funds engaging in global Rule 506
offerings, and has placed approximately 45 customer investments, for an aggregate NAV of $43
million, in such funds (as of September 30, 2015). Further, in 2015, JPMCB was engaged as
placement agent for three hedge funds engaging in global Rule 506 offerings, and has placed
approximately 41 customer investments, for an aggregate NAV of $19.5 million, in such funds
(as of September 30, 2015).
As a result of JPMCB's disqualification, such issuers would no longer be able - now or in
the future - to access JPMCB's extensive investor base, which is an important benefit to issuers
that engage JPMCB in Rule 506 offerings. Further, issuers that have expended significant time
and resources to establish relationships with JPMCB, would no longer be able to rely on
JPMCB's institutional knowledge to seek distribution channels for their securities. In addition,
there would be a significant administrative burden of switching to a new placement agent
relationship with a non-disqualified entity.
JPMCB acts as investment manager to 14 JPMC-affiliated funds, representing total assets
of approximately $6.1 billion. Such funds offer securities under Rule 506 to customers on a

WILMERHALE
Sebastian Gomez Abero, Esq.
December 11, 2015
Page 11

continuous basis with monthly closings. With respect to such funds, JPMCB is either the largest
or only distribution channel for such issuers' interests outside the United States. The
disqualification of JPMCB would have a severe impact on the affiliated funds' ability to continue
to raise new capital. Without being able to continue to raise new capital, existing investors in the
funds and the funds themselves would not be able to make new investments to grow the funds
and spread costs among numerous investors. The funds may not be able to provide the
investments and growth envisioned by current and future investors.
B.

Effects of Disqualification on JPMCB as Issuer

The ability to participate in Rule 506 offerings is also an important component of the
business of J.P. Morgan' s Corporate and Investment Bank. JPMCB is the issuer of structured
notes in transactions under Rule 506. Since January 1, 2012, JPMCB has issued such securities
in over 300 transactions for several hundred customers, with an aggregate principal amount of
approximately $2.5 billion. JPMCB plans to continue offering these securities to similar numbers
of customers in the future. The majority of these structured notes are sold through a third-party
placement agent to investors who specifically seek these products because of JPMCB's
knowledge and experience in the market, as well as investors seeking to diversify the credit risk
of their portfolios and to obtain competitive pricing through a bid process among multiple
product issuers.

Effects on JPMCB
If JPMCB is disqualified under Rule 506, it would no longer be able to issue structured
notes in reliance on the rule. Due to regulatory requirements, third-party customer prerequisites
and market expectations with respect to efficiency of issuance, JPMCB would not be able to
conduct such offerings on a registered basis or under an alternative exemption from the
registration requirements of the Securities Act. As a result, this offering activity would cease
upon JPMCB's disqualification, resulting in a significant loss of business for JPMCB.

Effects on Customers
Without a waiver, both Private Bank clients and third-party customers who invest in
structured notes issued by JPMCB would lose access to an important product used to diversify
their holdings. A majority of these structured notes are sold to third-party customers, who would
lose a trusted source of these products and access to an issuer that provides diversification of
credit risk for investors. In addition, third-party customers would lose the competitive pricing
benefits of including JPMCB in their suite of issuers of privately placed structured notes. Thirdparty customers would also face the burden of identifying and onboarding a new issuer of these
products.

WILMERHALE
Sebastian Gomez Abero, Esq.
December 11, 2015
Page 12

***
In light of the grounds for relief discussed above, we believe that disqualification is not
necessary under the circumstances and that JPMCB has shown good cause that relief should be
granted. Accordingly, we respectfully urge the Commission, pursuant to Rule 506(d)(2)(ii) of
Regulation D, to waive the disqualification provisions in Rule 506 to the extent they may be
applicable as a result of the entry of the CFTC Order as to JPMCB. 4
JPMCB will, for the time period described in Rule 506(d)(l) furnish (or cause to be
furnished) to each purchaser to whom JPMCB offers and sells securities in a Rule 506 offering
that would otherwise be subject to the disqualification under Rule 506(d)(l) as a result of the
CFTC Order, a description in writing of the CFTC Order a reasonable time prior to sale.

If you have any questions regarding any of the foregoing, please do not hesitate to contact
me at the telephone number below.

Sincerely

fwJ f,. EM/t/f'
Paul R. Eckert

4

We note in support of this request that the Commission previously has granted relief under Rule 506 in connection
with the entry of CFTC administrative orders for violations of the CEA (See, e.g., In the Matter of Barclays PLC,
Barclays Bank PLC and Barclays Capital Inc., Commission No-Action Letter (pub. avail. May 20, 2015)).
JPMCB is not requesting waivers of the disqualifications from relying on Regulation A and Rule 505 of Regulation
D at this time because it does not now use or participate in transactions under such offering exemptions. JPMCB
understands that it may request such waivers in separate requests if circumstances change.

ActiveUS 149931033v.l

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Asec%3A5c3a69cc90d1d105. Public record. Not legal advice.