Federal authorities have obtained confidential documents that shed new light on JPMorgan Chase?s decision to hire the children of China?s ruling elite, securing emails that show how the bank linked one prominent hire to ?existing and potential business opportunities? from a Chinese government-run company.
The documents, which also include spreadsheets that list the bank?s ?track record? for converting hires into business deals, offer the most detailed account yet of JPMorgan?s ?Sons and Daughters? hiring programme, which has been at the centre of a federal bribery investigation for months. The spreadsheets and emails ? recently submitted by JPMorgan to authorities ? illuminate how the bank created the programme to prevent questionable hiring practices but ultimately viewed it as a gateway to doing business with state-owned companies in China, which commonly issue stock with the help of Wall Street banks.
The hiring practices seemed to have been an open secret at the bank?s headquarters in Hong Kong, according to the documents, copies of which were reviewed by The New York Times. In the email citing the ?existing and potential business opportunities?, a senior JPMorgan executive in Hong Kong emphasised that the father of a job candidate was the chairman of the China Everbright Group, a state-controlled financial conglomerate. The executive also extolled the broader benefits of the hiring programme, telling colleagues in another email: ?You all know I have always been a big believer of the Sons and Daughters programme ? it almost has a linear relationship? with winning assignments to advise Chinese companies. Until now, the indications of a connection between the hires and business deals have not been so explicit.
In addition to the documents, interviews with current and former JPMorgan employees suggest that some people inside or affiliated with the bank bristled at the hiring strategy. At least two whistle-blowers have raised concerns, with one filing a complaint in April 2011 with the Hong Kong stock exchange and another coming forward to American authorities this year. Underscoring the worries, a junior banker in Hong Kong resigned from JPMorgan in December 2011, writing in an email that ?I do not think my family is in a position to help you to the extent as others did: Bring their family business to the firm.?
The scrutiny of JPMorgan, which has not been accused of any wrongdoing, could provide a template for federal authorities as they expand their investigation to include the hiring practices of at least five other Wall Street banks conducting business in China, according to interviews with people briefed in the inquiry who were not authorised to speak publicly. Those investigations from the Securities and Exchange Commission, which are at an early stage, involve Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs and Morgan Stanley. All five banks declined to comment.
JPMorgan is cooperating with the government inquiries from the SEC and the US attorney?s office in Brooklyn, which are examining whether the bank improperly swapped job offers and consulting contracts for business with state-owned Chinese companies. China?s economy is highly regulated, and many of its biggest companies are state-controlled.
There is no indication that executives at JPMorgan?s headquarters in New York were aware of the hiring practices described in the documents. And authorities might ultimately conclude that the bank?s hiring, while aggressive, did not cross a legal line.
JPMorgan declined to comment.
The SEC and the prosecutors in Brooklyn also declined to comment.
The breadth of the investigations underscore how pervasive the hiring practices may have become in China. For two decades, Wall Street banks have sought out China?s so-called princelings, turning family and friends of senior officials into bank employees and consultants.
The documents reviewed by The Times, along with the interviews, suggest that some executives at JPMorgan felt a need to scramble to compete with Wall Street rivals that already had footholds in China. JPMorgan may have adopted some of their hiring strategies ? and even shared employees and consultants.
The SEC and prosecutors are building their investigation around the Foreign Corrupt Practices Act, a 1977 law that makes it illegal for US companies to exchange ?anything of value? with foreign officials to win ?an improper advantage? in obtaining business.
It is unclear whether JPMorgan ever reached an upfront agreement with Chinese government officials. And the records reviewed by The Times do not suggest that the employees were unqualified. According to documents and interviews with current and former employees, JPMorgan created the ?Sons and Daughters? programme in 2006 with the expectation that the hires would receive heightened scrutiny.
But by 2009, the ?Sons and Daughters? programme was putting the job candidates on the fast track to employment. The documents show that applicants from prominent Chinese families faced less stringent hiring standards ? and fewer job interviews ? than the average junior-level hire.
JPMorgan also briefly kept ?historical deal conversion? spreadsheets, according to interviews with people briefed on the investigation. In one column, JPMorgan listed job candidates; in another, the bank recorded its ?track record? for winning business from companies tied to those candidates. Other spreadsheets listed well-connected hires and the revenue JPMorgan earned from deals with private and state-owned Chinese companies linked to those hires, documents show.
JPMorgan also tracked the revenue it received from private Asian companies that referred job candidates to the bank, a practice that would not fall under the Foreign Corrupt Practices Act. One hire was connected to Fubon Financial Holding, a financial services conglomerate in Taiwan that, according to the spreadsheet, produced 2009 revenue of $900,000 for JPMorgan.
JPMorgan bankers in Hong Kong coveted the business with Fubon. In an August 2010 email reviewed by The Times, a JPMorgan banker in Hong Kong explained that the bank had ?picked up a new mandate in Taiwan today?, but that holding onto the deal would depend on securing a job for someone related to a company executive.
?All we have to do,? the banker said, is secure the relative ?a full-time analyst job at JPM in NY?.
The problem, another employee in Hong Kong acknowledged, was that the candidate?s ?napping habit will be an eye-opening experience for our NY Colleagues?.
While the email appears to suggest a quid pro quo, the message is unlikely to alarm federal authorities, because it involves a private company rather than a state-owned enterprise.
But the bank?s hiring of Tang Xiaoning, a onetime Goldman and Citigroup employee whose father is the chairman of the China Everbright Group, appeared to encapsulate the spirit of the ?Sons and Daughters? programme for state-owned clients.
