An Illegal Investment With A Huge Potential Pay-Off

An Illegal Investment With A Huge Potential Pay-Off
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JPMorgan Chase & Co has agreed to pay a total of $264 million to settle charges that it violated the Foreign Corrupt Practices Act. Payments will be made to the U.S. Securities and Exchange Commission, the Justice Department and the Federal Reserve Board of Governors.

Appalling conduct

According to a Press Release issued by the SEC, during a seven-year period, JP Morgan "hired approximately 100 interns and full-time employees at the request of foreign government officials, enabling the firm to win or retain business resulting in more than $100 million in revenues..."

These interns were " typically unqualified for the positions on their own merit', according to Andrew J. Ceresney, Director of the SEC Enforcement Division. They were hired to generate revenues from government officials in the Asia-Pacific region.

This bribery scheme was not a casual, informal process. According to an article in The Guardian, it was internally designated as the "sons and daughters" program.

The Guardian reported that Citigroup, Goldman Sachs, Morgan Stanley and UBS were also "under scrutiny" for their hiring practices in Asia.

A checkered past

JPMorgan is no stranger to paying fines and penalties for irregular activity. You can find a list of fines and settlements it has paid, commencing in 2010, here. Its victims include veterans, consumers of electricity, its shareholders, its customers, LIBOR victims, and the trustees of 330 residential mortgage-backed securities trusts.

Tempted by profits

JPMorgan is probably no more ethically challenged than other major securities firms. The SEC published this list of enforcement actions addressing misconduct that led to or arose from the financial crisis. It's a "who's who" of the best-known members of the securities industry.

JP Morgan's illegal conduct wasn't subtle. According to Mr. Ceresney, "JPMorgan employees knew the firm was potentially violating the FCPA yet persisted with the improper hiring program because the business rewards and new deals were deemed too lucrative."

They knew, but they didn't care. The potential returns on its "investment" in unqualified (but well-connected) "interns" was just too tempting.

Despite this checkered history, JPMorgan's CEO, Jamie Dimon, was quoted in July, 2015 as stating he's "damn proud" of Wall Street. He added that most people are "damn ethical, smart, and create a huge amount of value."

As an investor, you have a decision to make about where to entrust your retirement savings. If you decide to retain the services of a Wall Street broker, consider the difficulty of finding someone who is "damn ethical."

I don't like your chances.

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