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19 Aug, 2013 11:51

Latest JPMorgan probe: Jobs for contracts

Latest JPMorgan probe: Jobs for contracts

US authorities launched an investigation into whether JPMorgan Chase hired the children of key Chinese officials to help it win business for a Hong Kong office. The case is the latest in a series of probes into the bank’s operations.

The Securities and Exchange Commission (SEC) is questioning the relationships of the largest US bank with at least two families in China, a source familiar with the matter told Reuters. 

The New York Times says the bank hired the son of a former Chinese banking regulator who has become the chairman of the state-controlled China Everbright Group. After his joined the bank, JPMorgan won several assignments from Everbright, the paper reports.

Another JP Morgan ‘suspect’ is a daughter of a Chinese railway official who was later accused of taking bribes for handing out government contracts, the Times reports, citing the US document and public records.
Hiring politically well-connected executives is allowed by US law, while taking on relatives of the heads of state-owned companies with the purpose of winning underwriting business could be classified as bribery under the US Foreign Corrupt Practices Act.

So far, the bank hasn’t been accused of any wrongdoing, as there is no documentary evidence any of the two ‘suspects’ were unqualified. Under the new probe, the SEC is checking whether the bank’s office in Hong Kong used his well – connected executives to routinely win contracts from the companies where they worked.

The practice of hiring politically connected Chinese employees was at its peak in the early-to-mid 2000s in the framework of so – called ‘elephant hunting’. The term was used to describe the situation where Wall Steer firms sought to receive mandates to manage multi-billion dollar offerings of stock by China’s state-owned giants.

The latest investigation adds to the long least of at least a dozen investigations initiated by the US and foreign governments, with the  $6.2 billion "London Whale" trading scandal thus far being the biggest case.

Former JPMorgan Chase traders Javier Martin-Artajo and Julien Grout were charged by US federal prosecutors for conspiracy, falsifying books and records, wire fraud, and registering false filings with the Securities and Exchange Commission.

The bank has also revealed that it is facing criminal and civil probes by the US Department of Justice in California into mortgage bonds that it sold before the financial crisis, Reuter’s reports.

Since 2011, the bank has been saying that it "is currently experiencing an unprecedented increase in regulation and supervision, and such changes could have a significant impact on how the firm conducts business".

JPMorgan could have legal losses amounting to $6.8 billion beyond an undisclosed sum that it has already set aside to cover those charges, the bank calculated last quarter.

JPMorgan's annual litigation costs have been around $5 billion for each of the last two years, Reuters reported.