In one instance, the bank hired the son of a former Chinese banking regulator who is now the chairman of the China Everbright Group, a state-controlled financial conglomerate, according to the document, which was reviewed by The New York Times, as well as public records. After the chairmans son came on board, JPMorgan secured multiple coveted assignments from the Chinese conglomerate, including advising a subsidiary of the company on a stock offering, records show.
The Hong Kong office of JPMorgan also hired the daughter of a Chinese railway official. That official was later detained on accusations of doling out government contracts in exchange for cash bribes, the government document and public records show.
The former officials daughter came to JPMorgan at an opportune time for the New York-based bank: The China Railway Group, a state-controlled construction company that builds railways for the Chinese government, was in the process of selecting JPMorgan to advise on its plans to become a public company, a common move in China for businesses affiliated with the government. With JPMorgans help, China Railway raised more than $5 billion when it went public in 2007.
The focus of the civil investigation by the US Securities and Exchange Commissions anti-bribery unit has not been previously reported. JPMorgan which has had a number of run-ins lately with regulators, including one over a multibillion-dollar trading loss last year made an oblique reference to the inquiry in its quarterly filing this month. The filing stated that the SEC had sought information about JPMorgans employment of certain former employees in Hong Kong and its business relationships with certain clients.
In May, according to a copy of the confidential government document, the SECs anti-bribery unit requested from JPMorgan a battery of records about Tang Xiaoning. He is the son of Tang Shuangning, who since 2007 has been chairman of the China Everbright Group. Before that, the elder Tang was the vice-chairman of Chinas top banking regulator.
The agency also inquired about JPMorgans hiring of Zhang Xixi, the daughter of the railway official. Among other information, the SEC sought documents sufficient to identify all persons involved in the decision to hire her.
A spokesman for JPMorgan said, We publicly disclosed this matter in our 10-Q filing last week, and are fully cooperating with regulators.
The railways ministry, which has since been restructured into various agencies, and the China Everbright Group did not respond to requests for comment. A spokeswoman for the SEC declined to comment.
Attempts over the weekend to reach Zhang and Tang Xiaoning, both of whom have left JPMorgan, were unsuccessful.
Experts note that there is nothing inherently illicit about hiring well-connected people. To run afoul of the law, a company must act with corrupt intent, or with the expectation of offering a job in exchange for government business.
The SEC, conducting a parallel investigation, is seeking to extract a rare admission of wrongdoing from the bank related to the losses. A settlement, which could come as soon as this fall, will also include a hefty fine, according to people briefed on the matter.
The agencys bribery inquiry could pose an even steeper challenge to JPMorgan. Although banks are prone to the occasional trading blunder JPMorgan produced record quarterly profits despite the losses in London last year a corruption inquiry could leave a more lasting mark on its reputation. It might also spur the justice department to open a criminal investigation. The SECs document appears to be looking for connections between his hiring and business JPMorgan won from the China Everbright Group and its banking arm. In its request, the SEC asked the bank to identify and produce all contracts or agreements between JPMorgan and China Everbright.
Before hiring Tang, JPMorgan appeared to do little if any business with China Everbright, based on a review of securities filings and news reports. Since then, though, China Everbright has emerged as one of its prized Asian clients. In 2011, its banking subsidiary hired JPMorgan as one of 12 financial advisers on its decision to become a public company.
Chinas Everbright probed over share spike
Chinas securities regulator pledged on Sunday to launch a formal investigation into major brokerage Everbright Securities after a dramatic 5% spike in domestic stock indexes last week that many suspected was the byproduct of a trading error. The China Securities Regulatory Commission (CSRC) has decided to formally open an investigation into Everbright Securities, a CSRC spokesman was quoted as saying in a statement posted on the regulators website. Based on the results of the investigation, CSRC will seriously deal (with Everbright Securities) in accordance with the law and make an announcement to the public in a timely manner, the spokesman said. An initial examination found no man-made operational mistakes, the spokesman said, adding that Everbrights information system management had many problems. It was the first (such) case since Chinas capital market was established, an extreme, isolated incident, the spokesman said.