JPMorgan Chase is attempting to engineer what could be the biggest clawback of pay in Wall Street history by demanding that Jes Staley return more than $80mn for failing to fully disclose the extent of the former executive’s relationship with Jeffrey Epstein.
If successful, the clawback of seven years worth of Staley’s compensation from 2006 to 2013, during which time he was one of the bank’s top executives, could be just the tip of the iceberg of what he has to pay.
JPMorgan is also seeking to make Staley liable for any damages awarded to the US Virgin Islands and one of Epstein’s alleged victims in two high-profile legal cases against the bank, as well as legal fees and damages for any reputational harm.
It shows the financial hit Staley faces over his association with the late convicted sex offender, which led to his resignation as Barclays chief executive in 2021. The lawsuit is also the most explicit declaration to date by JPMorgan that the bank’s leaders believe Staley protected Epstein’s position as a client and withheld vital information.
The lawsuits against JPMorgan by the USVI and the alleged Epstein victim claim the bank is liable for facilitating Epstein’s sexual abuse by failing to spot and act on red flags.
While legal experts cast doubt on the odds of the bank prevailing against Staley, JPMorgan is arguing new details have come to light through the two legal cases against the bank. JPMorgan alleged these court filings show the executive misled management when advocating for Epstein to remain a client of the bank, where the disgraced financier is alleged to have held hundreds of millions of dollars.
These new details include allegations that Staley personally spent time with young girls whom he met through Epstein and personally observed “Epstein sexually grab young women in front of him”.
JPMorgan and a lawyer for Staley declined to comment.
Nevertheless, experts said JPMorgan faces an uphill battle to claw back the funds. This is because their argument as laid out in the filing hinges on failure to adhere to a code of conduct, rather than any specific clawback mechanism that Staley signed up to.
“It’s hard to imagine that they’re actually going to get money from him,” said Jesse Fried, a professor at Harvard Law School. “I think this is more of an attempt to deflect blame, or to avoid being seen as protecting a wrongdoer. The facts may indeed show that JPMorgan was not in any way at fault.”
The bank is walking a fine line with its latest argument: it is simultaneously defending itself in these cases by arguing the lawsuits are unwarranted, while also claiming that it was misled by Staley into keeping Epstein on as a client. George Georgiev, law professor at Emory University, said JPMorgan’s suit against Staley showed an inconsistent legal position.
“They are suggesting that [Staley] had some sort of a unique knowledge that nobody else had and that JPMorgan could not have had through its formal channels. That’s possible but ideally KYC [know-your-customer] procedures should not depend on one person,” Georgiev said.
JPMorgan severed ties with Epstein in 2013, the same year Staley left the bank to join hedge fund BlueMountain Capital before later taking over at Barclays in 2015. Epstein took his business to Deutsche Bank.
During the years in question — 2006 to 2013 — Staley was one of JPMorgan’s highest paid executives, with his roles including running its asset and wealth management business and its investment bank. Between 2006 and 2011, his pay peaked at $18mn in 2007. JPMorgan did not disclose Staley’s pay for 2012 or 2013.
The amount JPMorgan is seeking to recoup from Staley is dwarfed by the more than $600mn clawed back from former UnitedHealth Group CEO William McGuire in 2007. But experts believe the amount JPMorgan is going after would be a new high for the banking industry — it would exceed the $69mn Wells Fargo clawed back from boss John Stumpf over its sham accounts scandal, as well as any clawback faced by executives at Goldman Sachs following the bank’s guilty plea in the 1MDB money-laundering case in 2020.
To support its claims, JPMorgan alleged that from at least 2006 through to 2012 Staley signed a written affirmation each year agreeing to remain in compliance entitled “Code of Conduct [year] Affirmation Record”. In each of those affirmations, he pledged: “I agree, as a condition of employment, to remain in compliance with the code and the supplemental policies that apply to me, all as amended from time to time.”
While clawback provisions are now common on Wall Street, it is relatively rare for banks to invoke them. It is even rarer for clawback disputes to end up in court.
Sarbanes Oxley, which was passed in 2002 in the wake of Enron and other accounting scandals, required all public companies to recoup pay from executives whose actions led to financial restatements. Many companies have since extended those clawback clauses to also include behaviour that harms the reputation of the group, as well as the bottom line directly.
JPMorgan’s most recent proxy statement says its executive pay is subject to a clawback provision that covers detrimental conduct. The bank says it can also claw back pay if an executive fails to “identify, raise or assess” risks that might end up doing material damage to the bank. JPMorgan’s 2006 proxy statement has no mention of the bank’s clawback provisions.
JPMorgan’s case against Staley, though it is seeking to recoup compensation, does not specifically point to the bank’s clawback rules. Instead, the company’s argument is Staley fell short in his responsibility “to refrain from activities that he knew would damage” the bank, either financially or reputationally, and to report any information that could affect JPMorgan’s reputation or decision-making.
Aalap Shah, a managing director at compensation consultants Pearl Meyer and an expert on clawbacks, said that while code of conduct clauses can be used to recoup pay, companies can have a harder time enforcing them than the clawback provisions, especially in court.
When it comes to clawback provisions, all a company has to prove is that the employee’s behaviour led to a financial restatement or some other loss. In order to win a fiduciary duty case, the company not only has to prove the link between the employee’s behaviour and the loss, but also intent.
“It’s a difficult case to make, though not insurmountable,” Shah said.
Dennis Kelleher, president of the advocacy group Better Markets, supported JPMorgan’s efforts to reclaim compensation but argued that the buck should not stop there.
“None of that changes the fact that JPMorgan knowingly decided to continue doing business for years with a criminally convicted sexual predator of underage girls,” Kelleher said. “That alone should have been a disqualification . . . regardless of what Staley or any other bank officer says.”