U.S. 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 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 program, which has been at the center of a federal bribery investigation. The spreadsheets and emails — recently submitted by JPMorgan to authorities — illuminate how the bank created the program 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 emphasized 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 program, telling colleagues in another email: “You all know I have always been a big believer of the Sons and Daughters program — it almost has a linear relationship” with winning assignments to advise Chinese companies.
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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 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 U.S. authorities this year.
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 authorized to speak publicly. Those investigations from the Securities and Exchange Commission (SEC), 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 SEC and the U.S. Attorney’s Office in New York, which are examining whether the bank improperly swapped job offers and consulting contracts for business with state-owned Chinese companies.
JPMorgan declined to comment. The SEC and the prosecutors in New York also declined to comment.
Scramble for footholds
The reviewed documents and the interviews suggest 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 shared employees and consultants.
Fullmark Consultants, a firm JPMorgan hired in 2006 to help improve its standing in China, also did business with Credit Suisse, according to interviews. Fullmark, which received a $75,000-a-month contract over two years from JPMorgan, was run by Wen Ruchun, the daughter of Wen Jiabao, who at the time was China’s prime minister, with ultimate responsibility over state-owned companies. In the contract with JPMorgan and other clients now at the center of the federal bribery investigation, Wen used the alias “Lily Chang.”
The SEC and prosecutors are building their investigation around the Foreign Corrupt Practices Act, a 1977 law that makes it illegal for U.S. 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 New York 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 program in 2006 with the expectation that the hires would receive heightened scrutiny.
But by 2009, the Sons and Daughters program 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.
The bank’s hiring of Tang Xiaoning, a onetime Goldman and Citigroup employee whose father is chairman of the China Everbright Group, appeared to encapsulate the spirit of the Sons and Daughters program.
The father, Tang Shuangning, approached a JPMorgan executive in Hong Kong in March 2010 about a position for his son, records and interviews show. The executive, who led JPMorgan’s China investment-banking unit, welcomed the request and urged colleagues in an email a day later to discuss “how we can leverage more on this account going forward.” But in an internal compliance form, the executive played down the significance of hiring the younger Tang, documents show, saying there was “no expected benefit.”
By that point in March 2010, JPMorgan appeared to do little if any business with China Everbright, according to securities filings and news reports.
But shortly after Tang’s father approached JPMorgan, a China Everbright subsidiary hired the bank to advise on a $300 million private offering of shares, according to interviews. And in 2011, after Tang worked at JPMorgan for several months, China Everbright’s banking subsidiary hired JPMorgan as one of several financial advisers on its decision to become a public company, a deal that was delayed amid turmoil on the world’s markets.
About that time, JPMorgan offered a second one-year contract to Tang.
While Tang worked at JPMorgan, the assignments from his father’s company continued to pile up for the bank. In 2012, China Everbright International hired JPMorgan to advise on a $162 million sale of shares, according to Standard & Poor’s Capital IQ, a research service. In May of that year, as Tang’s contract was expiring, JPMorgan faced a turning point. But at the urging of the JPMorgan investment-banking executive, Tang received another extension.
“Given where we are on China Everbright, I think we may need another contract for Xiaoning,” the executive wrote.