The Journal. - JPMorgan's $75 Million Jeffrey Epstein Settlement

Episode Date: September 27, 2023

JPMorgan is paying $75 Million to settle a lawsuit accusing the bank of aiding Jeffrey Epstein’s alleged sex trafficking. WSJ’s Dave Benoit delves into the twists and turns revealed during the legal proceedings and discusses what the settlement means for the bank’s reputation.  Further Reading: - JPMorgan Paying $75 Million to Settle Suit Over Jeffrey Epstein Ties  - Jamie Dimon Says He Never Discussed Jeffrey Epstein’s Accounts at JPMorgan; Jes Staley Says Dimon Did  - JPMorgan’s Ties to Jeffrey Epstein Were Deeper Than the Bank Has Acknowledged  Further Listening: - A $175 Million ‘Huge Mistake’  - How Jeffrey Epstein Made His Money  Learn more about your ad choices. Visit megaphone.fm/adchoices

Yesterday, a big lawsuit came to an end. J.P. Morgan will pay $75 million to settle a U.S. Virgin Islands lawsuit. The U.S. Virgin Islands sued J.P. Morgan late last year for aiding Jeffrey Epstein's alleged sex trafficking. Epstein died in jail in 2019. He was awaiting trial on allegations he ran a scheme trafficking young women and girls as young as 14. And Epstein had been a big client of J.P. Morgan. J.P. Morgan did not admit any wrongdoing.

They have been pretty consistent that they didn't do anything wrong. But they have also said, look, knowing what we know now, we regret that we kept him as a client until 2013. That's our colleague David Benoit. It was known that he was a convicted sex offender, that he was a registered sex offender. And they stayed with him as a client. The U.S. Virgin Islands accused J.P. Morgan of facilitating Epstein's alleged crimes because the bank had visibility into his accounts.

And they could see transactions and accounts for people who he set up and wire transfers and all these things that a bank is supposed to do to look at your customer. You're supposed to know your customer as a bank and flag things like trafficking. And the lawsuits say like all of the red flags, all of the smoke that JP Morgan saw and their compliance people saw

and the bank ignored it and kept working with him because he was such a lucrative client for them. Welcome to The Journal, our show about money, business, and power. I'm Kate Leinbaugh. It's Wednesday, September 27th. Coming up on the show, the cost of J.P. Morgan's long relationship with Jeffrey Epstein. When it comes to smart water alkaline 9.5 plus pH with antioxidant, there's nothing to overthink. So while you may be performing mental gymnastics over whether the post-work gym crowd is worth it, if you'll be able to find a spot for your yoga mat,

or if that spin instructor will make you late for dinner again, don't overthink how you hydrate. Life's full of choices. Smart Water Alkaline is a simple one. J.P. Morgan was sued twice last year over its relationship with Jeffrey Epstein. In November, an Epstein accuser brought a civil suit against the bank. And the following month, the U.S. Virgin Islands, where Epstein had a private island, filed its lawsuit seeking penalties and damages. The allegation is J.P. Morgan aided and abetted Epstein's sex trafficking, turning a blind eye, and ordered to keep him as a top client. And how did J.P. Morgan respond to this lawsuit?

J.P. Morgan's take on all of this was, look, we did the best we could. We made a mistake banking him. But it's not our job. It's not our fault that he wasn't stopped. Like, that's not our role. We did nothing wrong. We have nothing to hide here.

There's nothing we did that was improper. And that they are going to fight the lawsuit. Yes. So what comes out during this legal battle? What we learned via emails and internal J.P. Morgan reports and other court documents that came out was that in 2006, when Epstein first got arrested and publicly charged, the compliance team and JP Morgan knew it right away. This is their job to flag things like this. And so they begin this process in 2006 of discussing, hey, what is this guy doing with his money? And why is it that he's taking out $80,000 in cash several times a month, up to $750,000 a year? And why is he sponsoring credit cards for young women?

In 2008, Epstein was convicted of soliciting a minor for prostitution. He served about 13 months in prison. The bank says, we're going to stick with him. months in prison. The bank says, we're going to stick with him. And then there continue to be tabloid reports about him in discussions inside compliance. And every time Epstein's mentioned in the news, compliance department knows about it and says like, are we really sure this guy should be a client? Are you guys really sure about this? And they just keep asking. And for several years, there are compliance people saying, I don't think he should be a client. A 2011 email between compliance officers showed them talking about transactions made by a young

woman who Epstein helped open an account for. And it says, quote, oh my, were her debit transactions enlightening as compared to countless stories related to his escapades. Lots of salons, lingerie shops, drugstores, New York, Palm Beach, and in St. Thomas, Strauss houses. Plus lots of videos like Girls Gone Wild and some other shops not fit for my good Catholic upbringing. It's like, this is the extent that the bank can see

the Epstein transactions, and all that could be perfectly normal, but pairing it with what they know, what's being accused, this is the kind of stuff the Earth's Virgin and I have been saying, like, how did you not see it? And so, did anything come out in the lawsuit to sort of answer that question? What we wind up seeing is one of the reasons why the J.P. Morgan compliance department fails to get rid of Epstein when they're saying, hey, we should get rid of this guy, is they turned a top banker at J.P. Morgan, Jess Staley.

They turned a top banker at J.P. Morgan, Jess Staley. Jess Staley was the head of J.P. Morgan's private bank, which is a division that provides white-glove service to the bank's wealthiest clients, like Epstein. Staley, who later left J.P. Morgan, was seen as thealey to ask Epstein about allegations that he was trafficking young women for sex. And Staley goes and says, is any of this true? And Epstein says, no, it's not true. And Staley comes back and says to compliance, he says it's not true. And everyone says, okay, well, you know, just Staley, he's one of our top executives. He says that, that's fine. We're going to keep Epstein as a client. And was there anything in this lawsuit that came out and sort of showed how close Staley and Epstein were? Staley and Epstein exchanged 1,200 emails over the course of their relationship.

And we're clearly good friends. Staley and Epstein exchanging emails that included pictures of young women. Staley sending an email where he says, presently I'm in a hot tub with a glass of white wine. This is such an amazing place. Staley went on to say, I owe you much and I deeply appreciate our friendship. I have few so profound. So we start learning, wait a second, Staley went on to say, in which J.P. Morgan, in the middle of this lawsuit, says, wait a second, if we were to be

found liable, if there's a reason that we covered up Jeffrey Epstein's sex trafficking, it's not because we as a bank made a decision. It's because our former executive, Jess Staley, made a decision. And we're going to sue Jess Staley. Yesterday's action from the bank, which was filed in a Manhattan federal court, argues that Staley, who documents show had a close personal relationship with Epstein, should be held liable for any damages if the bank loses either of the cases that are pending against it. Now, JPMorgan... So the bank sues Jess Staley and says it's all on him. Now, Staley says he didn't know about Epstein's alleged crimes. So how does he respond?

Staley comes out and says, hey, I didn't cover up for him. I made sure that Jamie Dimon knew that this client we had was arrested for underage prostitution, had served jail, and was a big client of ours. Jamie Diamond is J.P. Morgan's longtime CEO. And Staley was pointing the finger at him. But how much did Diamond actually know about Epstein? That's next. know about Epstein? That's next. or is doing nothing because you look the same in whatever the heck red light therapy is.

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As this lawsuit was moving along, the U.S. Virgin Islands kept trying to get one thing, a deposition from J.P. Morgan CEO Jamie Dimon. There's a long fight over whether or not Jamie Dimon is going to be deposed. And partly this has to do with how high did Jeffrey Epstein go at the bank? Like, did Jamie and Diamond, the CEO of the bank, know about Jeffrey Epstein? And was he personally involved in keeping him as a client? There were a few possible tells that he was. There was an email in which a compliance person says, pending Diamond review, Epstein will remain a client. And the U.S. Virgin Islands really seized on this email and said, look, someone says Diamond had some role in this.

Diamond needs to go under oath and tell us what he knows about Jeffrey Epstein. J.P. Morgan said that email was an error, that the email's author didn't mean Diamond. The bank also said

it found no evidence that Diamond had anything to do with Epstein's account. But the judge says, nope, Diamond's going to be deposed. So at a pretty tense moment, Diamond is deposed by the U.S. Virgin Islands and by the accusers of Epstein who are suing the bank. And for several hours, he's questioned about what he knew about Jeffrey Epstein, about why the bank didn't fire him, why the bank didn't fire Epstein, and how much money the bank made off of Epstein and all of these questions.

But the answer is being really important to like, how big did this go at JP Morgan? How much of a problem is this going to be for the bank? And what does he say? Diamond was adamant that he knew nothing. In his deposition, Diamond said he had no recollection of discussing Epstein's accounts or of knowing anything about his crimes until the news of his arrest in 2019.

Diamond also said there were other J.P. Morgan executives who could have closed Epstein's accounts, including a top banker, Mary Erdos, who took over the private bank and all of wealth management from Staley. And why that's important is because for the longest time after Epstein was arrested, the bank had said Mary Erdos only remembers meeting Epstein one time, and that was the day she fired him as a client in 2013. And they had always sort of downplayed that she had any role in this at all. But what comes out in these lawsuits and discovery is lots of emails between

Mary Erdos and Epstein. A lot of them about business, a lot of them particularly about raising a giant philanthropy fund, about negotiating with other rich people, including Bill Gates, and trying to work together, but also joking about things and having banter back and forth and having what is clearly some sort of connection that isn't just, hey, this is a random person. The emails make clear that she knew him pretty well and emailed with him extensively and was aware of his reputation of being around young girls. How has J.P. Morgan and Mary Erdos responded to this? The bank has defended Mary Erdos pretty strongly,

and she remains a top executive at the bank. She has not publicly said very much, but in her deposition, she said, Look, I didn't know anything about the alleged allegations that he continued to engage in sex trafficking. And the bank has said, like, the emails and the diligence she shows is not that uncommon for what would happen with a very rich private bank client. As all this was coming out about J.P. Morgan executives, As all this was coming out about J.P. Morgan executives, the bank went on a counteroffensive.

Their biggest response is to turn the tables on the U.S. Virgin Islands and start releasing depositions and discovery about what Epstein was doing in the islands. That's their big target, to legally defend themselves. In a court filing, J.P. Morgan accused the U.S. Virgin Islands of protecting Epstein and helping to foster his criminal network. Quote, rather than stop him, they helped him. The bank homed in on an office manager for Epstein's businesses in the U.S. Virgin Islands, a woman whose husband went on to become the territory's governor.

She worked for Epstein for around 20 years. He was paying for not only her salary, which was a pretty wealthy salary, but he was paying for her and her husband's kids to go to school. He was making all these political donations, often at her guidance, you can see in emails with her and

maybe like most interestingly he and she are emailing about a law change being made in the US Virgin Islands regarding how people who are convicted sex offenders and registered sex offenders are treated in the island

and what kind of freedoms they have. And she is emailing him drafts of this bill saying like, what would you change? What do you think about this? And he's essentially trying to help write the laws that will govern how he himself can move in and out of the island. he himself can move in and out of the island. In a deposition, she said she didn't know anything about Epstein's criminal activity on the island. After all this information came out,

the case was barreling toward a trial next month. But then, both parties reached a settlement. J.P. Morgan will pay the U.S. Virgin Islands $75 million. This comes on top of a $290 million settlement that J.P. Morgan paid in June for the other lawsuit brought by an Epstein accuser, bringing the total paid by the bank for the two cases to $365 million. Also yesterday, a settlement was reached in J.P. Morgan's lawsuit against Staley, but the terms weren't made public. Will J.P. Morgan now be able to kind of close this chapter and walk away? This ends what we know about as the outstanding issues for J.P. Morgan. It's been a dark year for them. They've had to fight reputationally. They've been dented

and they've admitted like this is a mark on us. This hurts. And we're going to try to figure out how to be better about this. What has this done to J.P. Morgan reputationally? It's a little hard to quantify that. It certainly has not helped. It's a mark. I mean, if you look individually, like just Staley, his reputations and tatters, it's hurt Mary Erdos's reputation, and she remains a top executive at the bank. It's hurt Jamie Dimon's reputation as being a risk management person. And the fact that their compliance department worked in this way that allowed this to keep happening, even though there were so many red flags and questions,

I think that that lingers. And I think the bank would admit, like, we could do better. I do think that this hurts them and will stain them. And all of this for one client? All of this for one very wealthy client. Do they reflect on that? Not really. They admit that they need better procedures and better ways to watch for sex trafficking, in particular, and human trafficking.

But in a lot of ways, their answer is, look, when we have super wealthy clients, we treat them like rock stars. I mean, wealth management and the private bank and growing rich clients is a big part of their business right now. And they are really trying to be better at this. And that includes giving white glove service to people and helping them. And I think they hope that they don't have another Jeffrey Epstein in their bank right now, but it's not a perfect business. They deal with people who have scandal around them. What is your kind of takeaway for this?

I think the broadest takeaway is I don't think we've seen banks and financial institutions be held accountable for their relationships in this way before? JP Morgan have said like, look, we banked this person. He was just a client of ours, but he was a bad person and we are going to pay for that. I think that that's something that the banks are all now well aware of. And I think we will see some sort of change in how they deal with scandal, how they deal with even the richest clients in terms of how to protect themselves.

That's all for today, Wednesday, September 27th. The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting in this episode by James Finelli, Corinne Ramey, and Khadija Softar. Thanks for listening. See you tomorrow.