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Sometimes the only way to win is not to play. JPMorgan Chase has learnt the hard way that this advice applies not just to nuclear conflict in the film War Games but also to certain legal fights.
On Tuesday, the US bank halted the scorched-earth litigation over claims that it enabled convicted sex offender Jeffrey Epstein for 15 years to 2013 and profited from his A-list contacts. The bank agreed to pay $75mn to settle claims from the US Virgin Islands that it had helped Epstein’s human-trafficking operation at his home in the territory. It also settled a separate lawsuit where it had sought to claw back more than $80mn in remuneration from Jes Staley, the former top JPMorgan executive who was Epstein’s main contact.
These settlements come on top of the $290mn that the bank has agreed to pay to the dozens of women who claim to have been abused by the convicted sex offender, who died in jail in 2019 while awaiting a trial on new charges.
The lurid nature of the Epstein claims have posed a serious dilemma for JPMorgan. No company wants to be seen as an easy mark that hands out cash to aggressive lawyers, and no lender can afford to be held accountable for every miscreant who uses its facilities to pay for misbehaviour.
But the bank’s nearly year-long effort to fight the claims has consumed vast amounts of executive time. The legal back and forth with the USVI as well as Staley has included multiple efforts to throw mud on JPMorgan’s hard-won reputation as one of the best-run US banks.
The wrangling has also created problems for the business and cultural elites that JPMorgan seeks to serve. Subpoenas were issued for Elon Musk and Google co-founder Sergey Brin, and news reports based on Epstein’s personal emails and calendars revealed meetings with William Burns, now CIA director, linguist Noam Chomsky and LinkedIn co-founder Reid Hoffman.
JPMorgan, which kept Epstein on as a client through his 2008 guilty plea to soliciting sex with a minor, has repeatedly denied knowing about or facilitating his wrongdoing. It did not admit liability in any of the settlements but said: “The firm deeply regrets any association with this man, and would never have continued doing business with him if it believed he was using the bank in any way to commit his heinous crimes.”
Yet this is not the first time the bank has been faulted for having weak controls during the period Epstein was a client. In 2014, the bank paid $2.6bn to settle claims that it enabled Bernard Madoff’s huge Ponzi scheme and promised upgrades to its compliance.
Tuesday’s settlement with the USVI is nowhere near as large, nor as damaging to the bank as it could have been. The $75mn is less than half the $190mn the island government sought. The deal comes after the bank fought back aggressively in court, claiming that “the entity that . . . most actively facilitated and benefited from Epstein’s continued criminal activity was . . . the USVI government itself”. The Staley settlement is confidential.
Whatever the strength of JPMorgan’s legal arguments, the longer the lawsuits dragged on, the more distracting they became, and the worse the details looked. Staley and other senior executives visited Epstein’s homes in New York and the USVI. JPMorgan’s risk and compliance teams issued at least five warnings about Epstein’s links to child trafficking and molestation. Internal emails filled with vivid language and claims that Staley had exchanged 1,200 emails with Epstein including pictures of young women reinforced the depth of the bank’s involvement.
In May, chief executive Jamie Dimon endured a seven-hour deposition in which he repeatedly insisted that he had no idea the paedophile had been a client until Epstein’s second arrest on sexual abuse charges in 2019. Yet Staley claimed under oath that he personally informed Dimon of Epstein’s misdeeds in 2006. The bank calls that claim “false” but the back and forth would have continued.
JPMorgan is not the first company to decide that enduring an intrusive civil lawsuit is more damaging than settling claims it believed it could win. It isn’t even the first this year. The Fox television network initially tried to fight a defamation claim from voting technology group Dominion but ended up paying nearly $790mn, in what its chief executive said was “a business decision”.
With the USVI trial date approaching, the decision to settle and end the revelations makes sense for the bank and its investors. Whether a full airing of the complaint would have been in the public interest, we will never know.
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