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JPMorgan Chase has been hit with a proposed class action lawsuit in New York federal court, alleging that its securities branch "shortchanged" customers by automatically redirecting their uninvested cash balances into deposit accounts at its affiliate, Chase Bank.

Plaintiff Claims Misuse of Bank Deposit Sweep Program

Dan Bodea, the plaintiff, filed a complaint on Friday accusing JPMorgan Securities of leveraging its "Bank Deposit Sweep Program" to provide excessive benefits to itself and its affiliates. According to the suit, JPMorgan Securities, acting as an agent and fiduciary for its customers, used the program to automatically deposit uninvested cash into accounts at Chase Bank, supposedly to offer an interest-bearing, FDIC-insured option for holding cash.

The complaint argues that JPMorgan Securities, as per the program agreements, is obligated to act in its customers' best interests, including negotiating interest rates and selecting accounts. However, Bodea claims the bank’s actions breached these fiduciary duties, benefiting itself rather than its customers.

JPMorgan Chase sweeping customers Suit : Allegations of Conflict and Concealment

Bodea alleges that JPMorgan Securities exploited the bank deposit sweep program to take compensation from customers' cash and misled them about the benefits received. The complaint accuses the bank of failing to disclose its dual role as both a customer and an affiliate's agent, resulting in a conflict of interest.

The lawsuit asserts that JPMorgan Securities engaged in one-sided transactions with Chase Bank, designed to shift financial gains from customers to Chase Bank. Additionally, Bodea claims that JPMorgan Securities misrepresented the fees associated with the program, often omitting them entirely from customer disclosures.

JPMorgan Chase sweeping customers Suit : Legal Action and Potential Implications

The lawsuit seeks damages, attorney fees, and a jury trial. JPMorgan Chase declined to comment on Monday, and counsel for Bodea did not immediately respond to requests for comment.

This lawsuit follows JPMorgan Chase’s disclosure last November of regulatory inquiries concerning aspects of its advisory programs, including account aggregation, fee discounting, and portfolio manager selection.

Bodea is represented by Radha Nagamani Raghavan, Michael Dell'Angelo, Andrew D. Abramowitz, and Alex B. Heller of Berger Montague PC, and Alan L. Rosca, Jonathan A. Korte, and Paul J. Scarlato of Rosca Scarlato LLC. Counsel information for JPMorgan Chase was not immediately available.