July 3, 2012 at 10:06 AM ET
In search of lost profit after the financial crisis, JPMorgan Chase pushed investors to buy its own mutual funds even when competitors had better-performing or cheaper options, according to a report in the New York Times.
The article cites JPMorgan’s current and former financial advisers who said that, as the bank became one of the nation's largest mutual fund managers, they were encouraged, at times, to favor the company’s products.
The practice would have had a clear benefit to JP Morgan, the Times noted. It would have driven up the amount of fees the bank collected for managing the funds and would have allowed it to buck an industry trend that is seeing ordinary investors leave stock funds amid the ongoing volatility in the market, the newspaper said.
Crucially, the bank exaggerated the returns of what it was selling in marketing materials, according to documents reviewed by the Times.
The Times also noted JPMorgan is collecting assets in its stock funds at a rapid rate, even though the company has only a small number of top-performing mutual funds that are run by portfolio managers. Stock funds run by managers usually have higher fees than a simple index fund, which typically tracks the performance of a market index.
The report mentions research from Morningstar, a provider of mutual fund research, that shows nearly half of JPMorgan’s stock funds have failed to beat the average performance of funds making similar investments over the past three years.
The Times also cited one former JPMorgan financial adviser who said he sold “JPMorgan funds that often had weak performance records, and I was doing it for no other reason than to enrich the firm.”
Separately, U.S. energy regulators have subpoenaed JPMorgan twice in the past three months as part of an investigation into whether the bank manipulated power markets in California and the Midwest.
The Federal Energy Regulatory Commission (FERC) on Monday filed a petition in U.S. federal court to require JPMorgan to produce emails as part of a formal probe into JPMorgan power market bidding practices in those areas.
"We have been responding to a FERC investigation into certain activities in our federally approved power business. We believe we have complied in all respects with the law, as well as FERC rules and applicable tariffs, governing this market," said JPMorgan spokeswoman Jennifer Zuccarelli in an email, referring to the company's 10Q federal filings.
"We stress that this investigation is ongoing and that no conclusions have been reached or findings adjudicated. We welcome the Court's assistance in resolving this dispute over documents," she said.
JPMorgan buys and sells electricity for its own account and others.
Reuters contributed to this story.