Why JPMorgan Is Turning on an Ex-Star

Jes Staley is sued over Jeffrey Epstein

At JPMorgan Chase, James “Jes” Staley rose through the ranks, leading its asset management and investment banking businesses and becoming a top lieutenant to the banking giant’s chief, Jamie Dimon.

But JPMorgan sued Staley on Wednesday, accusing him of failing to fully inform the bank about what he knew about Jeffrey Epstein, the disgraced financier who died in federal custody in 2019 and was a longtime client. If JPMorgan is found liable for providing banking services to Epstein, it wants its former executive to pay up.

JPMorgan itself has been sued twice over Epstein, who had been a client of the firm’s until 2013. In one suit, the U.S. Virgin Islands argues that the bank should have been aware of Mr. Epstein’s yearslong abuse of young women, given the financier’s closeness with Mr. Staley. The other, filed by a woman identified only as Jane Doe who says she was a victim of Mr. Epstein’s, accused JPMorgan of failing to stop his crimes.

JPMorgan has denied that it is liable, and is seeking to have the lawsuits dismissed. It has also been fighting off efforts to depose Dimon in connection with the litigation.

Mr. Staley had long been tied to Epstein, dating back to when he was running JPMorgan’s private bank. Mr. Epstein was a source of client referrals, elevating Staley’s status within the bank. The two men stayed close — even after Mr. Epstein pleaded guilty in 2008 to a prostitution solicitation charge involving a teenage girl.

Mr. Staley has said he didn’t know about Mr. Epstein’s crimes and regrets the relationship. But the lawsuits filed against JPMorgan argue otherwise: The Virgin Islands contends that the two men had swapped sexually suggestive emails about young women even after 2008. And the Jane Doe lawsuit contends that an unidentified friend of Epstein’s sexually assaulted her and visited young girls at Epstein residences; JPMorgan said in its lawsuit that the friend was Staley.

In its lawsuit, JPMorgan said Staley “affirmatively misrepresented the true facts of his and Epstein’s personal interactions and activities,” and “repeatedly provided misleading information” about Mr. Epstein to bank officials. A lawyer for Mr. Staley declined to comment to The Times.

Those ties have cost Mr. Staley dearly. While Mr. Epstein wasn’t cited as the reason he left JPMorgan in 2013, it was definitely the reason he resigned as C.E.O. of Barclays in 2021: British banking regulators had raised questions about how he had characterized his relationship with Mr. Epstein.

JPMorgan now wants Mr. Staley to pay up if the other lawsuits succeed at court. It’s also seeking to claw back all his compensation from at least 2006 to 2013.

HERE’S WHAT’S HAPPENING

A front-runner reportedly emerges for the Fed’s vice chair role. Janice Eberly, a Northwestern University professor who was a senior economist in the Obama administration, is a top contender for the position, according to Bloomberg. If picked, she would replace Lael Brainard, who last month became President Biden’s top economic aide.

The Netherlands agrees to restrict chip making exports to China. The move, made on national security grounds, will bolster U.S. efforts to deny Beijing access to advanced semiconductor technology. Relatedly, Chinese A.I. companies are using subsidiaries and cloud computing partners to skirt export controls, according to The Financial Times.

The U.S. and Europe pursue a compromise on climate subsidies. The two sides are in talks over a potential trade deal that would allow European companies to qualify for some benefits under the Inflation Reduction Act, The Times reports. The E.U. has repeatedly said that climate-related subsidies from the law could hurt European companies.

More details emerge about President Biden’s deficit-reduction proposals. The White House’s coming budget proposal — due on Thursday and certain to be rejected by House Republicans — will put forth $3 trillion worth of ways to cut the federal spending gap. They include a 25 percent minimum tax on billionaires and nearly doubling the capital gains rate.

EY reportedly pauses its breakup effort. The consulting and auditing firm has stopped work on its plan to spin off its consulting arm, amid an internal dispute over the future of EY’s tax practice, according to The Financial Times.

Silvergate will finally shut its doors

The crypto industry is losing one of its biggest lenders: Silvergate Capital, which transformed itself from a small California real-estate bank into a force in cryptocurrencies, said on Wednesday that it would wind itself down and return customer deposits.

Silvergate’s struggles, which date to the fall of FTX underscore regulators’ fears of mainstream banks getting involved with digital currencies. But its collapse could have broader consequences for crypto companies.

Crypto is more dependent on regular lenders than it might appear. While proponents of the ecosystem pitch cryptocurrencies as an alternative to traditional money, companies in the sector still need access to real-world currencies like dollars to facilitate customer deposits and withdrawals. (They also need those currencies for operational tasks like paying employees and bills.)

Silvergate was one of the first traditional lenders to serve the crypto industry, but it was forced to sell assets at steep losses to cover a stampede of customer withdrawals following the demise of FTX, with which it had ties. By Wednesday, many top crypto companies were rushing to say that they had no remaining links to Silvergate.

Expect Washington to pay more attention to banks and crypto. Regulators warned banks last month about the liquidity risks involved in the business, and are poised to tighten rules for banks with even a little exposure to crypto. Relatedly, shares in Signature Bank were down sharply in premarket trading, amid investor concerns about its exposure to crypto. Silvergate’s collapse was “not a shocker,” Lee Reiners, the policy director at the Duke Financial Economics Center, told DealBook — but it will probably bolster calls to “keep crypto out of the traditional finance system.” (He will testify at a House hearing on crypto this afternoon.)

Crypto defenders say a crackdown is misguided. “By refusing to allow our traditional banks to participate, regulators have inadvertently created significant concentration risk on a handful of relatively small banks,” Mike Belshe, the C.E.O. of the digital asset company BitGo, wrote in prepared testimony for a hearing on crypto in the House on Thursday. (Already, JPMorgan Chase is reportedly cutting ties with the crypto exchange Gemini, according to Coindesk.)

Some argue that crypto companies may be driven to offshore lenders if U.S. banks are largely closed off to them. That may suit American authorities just fine: “As far as the agencies are concerned, that which goes offshore can go offshore as long as it stays offshore,” Karen Petrou of the think tank Federal Financial Analytics told DealBook.

Why tomorrow’s jobs report is so consequential

Investors may have caught a breather on Wednesday, with the S&P 500 and Nasdaq eking out modest gains, but Wall Street is still on tenterhooks over tomorrow’s jobs report.

Investors fear that a strong jobs number will lead to higher interest rates. The Fed chairman, Jay Powell, told Congress this week that the coming labor and inflation reports — the latest Consumer Price Index data will come out on Tuesday — will be “very important” factors as the central bank determines its interest rates policy. Powell added that “the ultimate level of interest rates is likely to be higher than previously anticipated” — comments that spooked markets.

Economists polled by Bloomberg forecast that 215,000 jobs were created last month, a sharp drop-off from January’s blowout report. Such a figure, though, would show that the labor market is still expanding — maybe too much for the Fed’s comfort. A big caveat: The past 10 jobs reports have come in above analysts’ expectations.

Investors got mixed data on the labor market on Wednesday. The Labor Department’s JOLTS report indicated that employers are beginning to slow their pace of hiring. And, quits rates, a closely watched data point in forecasting wage gains, also eased. But the number of job vacancies remains high.

“While January’s JOLTS report provided further evidence of modest softening in labor market conditions, progress is likely to be too slow to comfort the Fed,” Mickey Levy, chief U.S. economist for Berenberg Capital Markets, wrote in a client note on Wednesday.

How high could the Fed go? Wall Street analysts are increasingly betting that the central bank will raise the prime lending rate by an additional percentage point or more.

The prospect of a more hawkish Fed is raising fears that the moves will slow the economy, and even push it into recession. The bond market has been flashing that signal more acutely in recent days.

“If you are not in a profit center, you’re kind of screwed.”

— Kharis O’Connell, a veteran designer of futuristic products who has worked for Google and Amazon, on the job security perils that come with working on the C.E.O.’s pet project, particularly those that have a moonshot feel.

Iron Man adds to his portfolio

Robert Downey Jr. is investing in Aura, a start-up specializing in safeguarding consumers from online scams and data breaches. The “Iron Man” actor will become a board member and adviser as part of a 10-year business partnership — the latest example of venture-backed firms soliciting Hollywood investors.

The deal will include commercials and other public-facing roles. “It’s just a way for me to do something different than just making movies and TV shows,” Downey Jr. told DealBook. “I’m 57 — so I’m looking at the back nine on the golf course here and my interests have widened significantly.”

Hollywood connections led to Downey’s involvement. Aura raised $200 million at a $2.5 billion valuation in 2021 in an investment round led by Madrone Capital Partners. The company’s other backers include the Hollywood mogul Jeffrey Katzenberg’s WndrCo and the private equity firms Warburg Pincus and General Catalyst. Downey Jr., a serial seed investor and old friend of Katzenberg’s, did not disclose the size of his investment.

Aura is eyeing opportunities as the threat of cyberattacks grows. In 2021, the United States “experienced an unprecedented increase in cyberattacks and malicious cyber activity,” according to the FBI. Aura’s C.E.O., Hari Ravichandran has said the company is cash-flow positive and expects to acquire other companies before looking to go public.

THE SPEED READ

Deals

Policy

Best of the rest

We’d like your feedback! Please email thoughts and suggestions to [email protected].