Clawbacks of pay from misbehaving employees aren’t uncommon, but some are sharper than others. JPMorgan is suing to take back eight years of compensation from former executive Jes Staley, who left in 2013 to become chief executive of UK lender Barclays, over his links to deceased sex offender Jeffrey Epstein. Suing former employees – in this case using an archaic-sounding doctrine that brands Staley a “faithless servant” – isn’t a great look, but the bank led by Jamie Dimon has more reasons than most to defend itself.
At first glance, Dimon needn’t lose too much sleep over the Epstein affair. His $400 billion firm is being pursued for unspecified damages by a woman who argues that it knew of Epstein’s sex trafficking venture, and is also being sued by the government of the U.S. Virgin Islands. But the bank argues the allegations are without merit. Staley has denied knowledge of Epstein’s actions.
Even if JPMorgan is confident in its defence, the value of the reputation it must defend is high and rising. The bank has delivered a more than 400% total return to shareholders since Dimon took over in 2006, while talking up its “fortress” balance sheet. It has a knack for dodging crises: Dimon and his employer survived the 2008 financial meltdown and avoided the recent blowup of hedge fund Archegos Capital Management. It’s over 10 years since JPMorgan’s high-profile London Whale trading loss. Moreover, Dimon’s industry-leading $34.5 million pay for 2022 reflects – and demands – a flawless performance.
The bank’s response is therefore aggressive. If JPMorgan loses either of the lawsuits in which it is a defendant, it wants Staley to share in the damages. Even if it doesn’t, Dimon’s firm wants to recoup Staley’s pay since 2006, a figure estimated at over $80 million, on the grounds that he was a faithless servant of the bank, a concept sometimes used in New York courts when an employee acts gravely against the company’s interest. That goes far beyond the three-year cut-off under U.S. clawback rules.
Such action could backfire. Current or future employees might worry they too could find themselves branded a faithless servant for failing to disclose moral missteps, or having clients who fall from grace. But JPMorgan also has other clients, depositors, regulators and politicians to soothe. The wealthier a kingdom gets, the more ferocious its defences.
JPMorgan on March 8 filed a complaint against former executive James “Jes” Staley, for not disclosing his relations with former client and sex offender Jeffrey Epstein. The bank, which has been sued by the U.S. Virgin Islands over Epstein’s activities, is seeking to recoup compensation dating back as far as 2006. The claim seeks to recover from Staley any damages JPMorgan might suffer if it loses a separate case brought by a woman who says she was a victim of Epstein’s “sex-trafficking venture”. JPMorgan says that, based on the allegations in the two cases, Staley breached his fiduciary duty to the bank and violated the “faithless servant doctrine” by not reporting his relations with Epstein and by vouching for him as a client. Staley left the bank in 2013, and subsequently became chief executive of Barclays.