Analyst’s Error Results in FINRA Sanction


New York, NY – This past summer, FINRA reached a settlement with a junior analyst at JP Morgan regarding the analyst’s handling of a mistake in a research report published by the firm on ATP – an energy firm based in Houston TX.  FINRA ruled that the analyst publically disclosed nonpublic information to persons outside of her firm who were in a position to take advantage of the nonpublic information in the securities markets or pass the information on to others who could take advantage of it.

Background of the Case

At question in the case was a junior analyst with JP Morgan’s Oil & Gas Exploration and Production team, who between July 2008 and August 2010, covered ATP – an energy firm that operates oil platforms in the Gulf of Mexico and North Sea.

In or about June 2010, this analyst worked with the senior analyst on the team to review the pricing models of the companies under coverage by their group, including ATP.  The review of ATP resulted in the senior analyst downgrading ATP to Underweight from Neutral based on the assessment that the firm needed $500 mln in additional financing – significantly more than the market expected.  This was published in a report on July 13, 2010.  As a result of this report, ATP’s stock fell 15% from its pre-report price over the next two days.

Shortly after the release of JP Morgan’s research report, management from ATP complained that the reported $500 mln financing need was wrong.  As a result, the junior analyst checked the financial model used in the report and discovered that there was an error in the model – overstating ATP’s financing need by $450 mln.

On July 13th and 14th, 2010 the junior analyst told three different people outside of JP Morgan about the error in the ATP model, including her boyfriend who worked as an analyst for a buy-side firm; another friend who worked as a hedge fund analyst, and a third friend.

On July 15th, 2010 JP Morgan issued a new report outlining the error and correcting their calculated financing need for ATP to $50 mln instead of the initial $500 mln.

JP Morgan Research Compliance Policies and Procedures

JP Morgan maintained a set of compliance policies and procedures which applied to their equity research analysts.  These policies and procedures included a number of confidentiality requirements that directly addressed situations similar to the nonpublic information that resulted from the ATP error.

Specifically, JP Morgan’s policies and procedures prohibited the junior analyst from disclosing nonpublic information obtained in the course of her duties at the firm to anyone outside the research department unless specifically approved by the firm’s legal or compliance departments.  The junior analyst did not seek, nor did she receive any such approvals to provide the information about the ATP errors to outside parties.

FINRA’s Findings

FINRA concluded that the junior analyst had disclosed nonpublic information concerning the ATP error on multiple occasions through emails and conversations to persons outside of her firm who were in a position to take advantage of the nonpublic information in the securities markets or pass the information on to others who could take advantage of it.  FINRA also concluded that the junior analyst disclosures breached her duties under the firm’s confidentiality policies and procedures, and were inconsistent with high standards of commercial honor and just and equitable principles of trade.

Consequently, without admitting or denying the allegations, the junior analyst in question agreed to FINRA’s Offer of Settlement in which she was fined $20,000 and suspended from association with any FINRA member in any capacity for 15 business days.  The settlement was dated July 12, 2012.

The suspension was in effect from August 13, 2012, through August 31, 2012.  For more details on this case, click on

Implications for Other Firms

Integrity has concluded that this case has a few important implications for other regulated and unregulated research firms.  First, research providers need to address how their employees should handle nonpublic information obtained during the course of their duties in their compliance policies and procedures.  Second, research providers also need to train their staff about how internal developments – including analytical errors – could, in certain circumstances, become risky nonpublic information.  Consequently, this information needs to be handled with the same care given to more traditional MNPI or “insider information”.



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