JPMorgan Chase is trying to engineer what might be the most important clawback of pay in Wall Avenue historical past by demanding that Jes Staley return greater than $80mn for failing to completely disclose the extent of the previous govt’s relationship with Jeffrey Epstein.
If profitable, the clawback of seven years price of Staley’s compensation from 2006 to 2013, throughout which period he was one of many financial institution’s prime executives, might be simply the tip of the iceberg of what he has to pay.
JPMorgan can be looking for to make Staley answerable for any damages awarded to the US Virgin Islands and one in all Epstein’s alleged victims in two high-profile authorized instances in opposition to the financial institution, in addition to authorized charges and damages for any reputational hurt.
It exhibits the monetary hit Staley faces over his affiliation with the late convicted intercourse offender, which led to his resignation as Barclays chief govt in 2021. The lawsuit can be essentially the most express declaration to this point by JPMorgan that the financial institution’s leaders consider Staley protected Epstein’s place as a consumer and withheld important info.
The lawsuits in opposition to JPMorgan by the USVI and the alleged Epstein sufferer declare the financial institution is answerable for facilitating Epstein’s sexual abuse by failing to identify and act on pink flags.
Whereas authorized specialists solid doubt on the chances of the financial institution prevailing in opposition to Staley, JPMorgan is arguing new particulars have come to gentle by means of the 2 authorized instances in opposition to the financial institution. JPMorgan alleged these court docket filings present the manager misled administration when advocating for Epstein to stay a consumer of the financial institution, the place the disgraced financier is alleged to have held a whole bunch of tens of millions of {dollars}.
These new particulars embrace allegations that Staley personally frolicked with younger ladies whom he met by means of Epstein and personally noticed “Epstein sexually seize younger girls in entrance of him”.
JPMorgan and a lawyer for Staley declined to remark.
However, specialists mentioned JPMorgan faces an uphill battle to claw again the funds. It’s because their argument as specified by the submitting hinges on failure to stick to a code of conduct, fairly than any particular clawback mechanism that Staley signed as much as.
“It’s onerous to think about that they’re really going to get cash from him,” mentioned Jesse Fried, a professor at Harvard Regulation Faculty. “I feel that is extra of an try to deflect blame, or to keep away from being seen as defending a wrongdoer. The information could certainly present that JPMorgan was not in any method at fault.”
The financial institution is strolling a wonderful line with its newest argument: it’s concurrently defending itself in these instances by arguing the lawsuits are unwarranted, whereas additionally claiming that it was misled by Staley into maintaining Epstein on as a consumer. George Georgiev, regulation professor at Emory College, mentioned JPMorgan’s swimsuit in opposition to Staley confirmed an inconsistent authorized place.
“They’re suggesting that [Staley] had some kind of a singular data that no one else had and that JPMorgan couldn’t have had by means of its formal channels. That’s attainable however ideally KYC [know-your-customer] procedures shouldn’t rely upon one individual,” Georgiev mentioned.
JPMorgan severed ties with Epstein in 2013, the identical yr Staley left the financial institution to affix hedge fund BlueMountain Capital earlier than later taking up at Barclays in 2015. Epstein took his enterprise to Deutsche Financial institution.
In the course of the years in query — 2006 to 2013 — Staley was one in all JPMorgan’s highest paid executives, together with his roles together with operating its asset and wealth administration enterprise and its funding financial institution. Between 2006 and 2011, his pay peaked at $18mn in 2007. JPMorgan didn’t disclose Staley’s pay for 2012 or 2013.
The quantity JPMorgan is looking for to recoup from Staley is dwarfed by the greater than $600mn clawed again from former UnitedHealth Group CEO William McGuire in 2007. However specialists consider the quantity JPMorgan goes after could be a brand new excessive for the banking business — it will exceed the $69mn Wells Fargo clawed again from boss John Stumpf over its sham accounts scandal, in addition to any clawback confronted by executives at Goldman Sachs following the financial institution’s responsible plea within the 1MDB money-laundering case in 2020.
To assist its claims, JPMorgan alleged that from a minimum of 2006 by means of to 2012 Staley signed a written affirmation every year agreeing to stay in compliance entitled “Code of Conduct [year] Affirmation Report”. In every of these affirmations, he pledged: “I agree, as a situation of employment, to stay in compliance with the code and the supplemental insurance policies that apply to me, all as amended on occasion.”
Whereas clawback provisions at the moment are frequent on Wall Avenue, it’s comparatively uncommon for banks to invoke them. It’s even rarer for clawback disputes to finish up in court docket.
Sarbanes Oxley, which was handed in 2002 within the wake of Enron and different accounting scandals, required all public firms to recoup pay from executives whose actions led to monetary restatements. Many firms have since prolonged these clawback clauses to additionally embrace behaviour that harms the fame of the group, in addition to the underside line straight.
JPMorgan’s most up-to-date proxy assertion says its govt pay is topic to a clawback provision that covers detrimental conduct. The financial institution says it could additionally claw again pay if an govt fails to “determine, increase or assess” dangers that may find yourself doing materials harm to the financial institution. JPMorgan’s 2006 proxy assertion has no point out of the financial institution’s clawback provisions.
JPMorgan’s case in opposition to Staley, although it’s looking for to recoup compensation, doesn’t particularly level to the financial institution’s clawback guidelines. As a substitute, the corporate’s argument is Staley fell quick in his accountability “to chorus from actions that he knew would harm” the financial institution, both financially or reputationally, and to report any info that might have an effect on JPMorgan’s fame or decision-making.
Aalap Shah, a managing director at compensation consultants Pearl Meyer and an professional on clawbacks, mentioned that whereas code of conduct clauses can be utilized to recoup pay, firms can have a more durable time implementing them than the clawback provisions, particularly in court docket.
In the case of clawback provisions, all an organization has to show is that the worker’s behaviour led to a monetary restatement or another loss. With the intention to win a fiduciary responsibility case, the corporate not solely has to show the hyperlink between the worker’s behaviour and the loss, but additionally intent.
“It’s a troublesome case to make, although not insurmountable,” Shah mentioned.
Dennis Kelleher, president of the advocacy group Higher Markets, supported JPMorgan’s efforts to reclaim compensation however argued that the buck shouldn’t cease there.
“None of that adjustments the truth that JPMorgan knowingly determined to proceed doing enterprise for years with a criminally convicted sexual predator of underage ladies,” Kelleher mentioned. “That alone ought to have been a disqualification . . . no matter what Staley or another financial institution officer says.”