JPMorgan Kept Epstein as a Client Despite Internal Warnings

When compliance officers at JPMorgan Chase & Co. conducted a sweep of their wealthy clients a decade ago, they recommended that the bank cut its ties to financier Jeffrey Epstein because his accounts posed unacceptable legal and reputational risks.

Yet Epstein, who had been charged with sex crimes and pleaded guilty in 2008 to solicitation of prostitution, remained a JPMorgan client until 2013.

The main reason, according to six former senior executives and other bank employees familiar with the matter, was that Mary C. Erdoes, one of JPMorgan’s highest-ranking executives, intervened to keep him as a client.

Part of her rationale was that Epstein played a lucrative role recruiting new customers to JPMorgan’s private-banking division, which caters to ultrawealthy people and families, the six employees said. That made him an especially coveted client.

The episode is another example of how powerful institutions and individuals, eager to profit from Epstein and his network of wealthy acquaintances, looked past his criminal history and sex offender status. As a result, he managed to retain crucial business connections even as, prosecutors said in a federal indictment in July, he engaged in the sexual trafficking of girls as young as 14.

Epstein, a JPMorgan client for about 15 years, is being held without bail in a New York City jail. He has pleaded not guilty to the sex-trafficking charges. His lawyers did not respond to requests for comment.

Joseph Evangelisti, a JPMorgan spokesman, disputed The New York Times’ reporting.

“Mary would never overrule our compliance team or other controls functions to retain a customer,” he said. “She has only one recollection of formally meeting with the customer, which was the day she fired him as a client.”

Erdoes, viewed within JPMorgan as a potential successor to Jamie Dimon, the longtime chief executive, was not alone in making the case for Epstein inside the bank.

James E. Staley, who ran the bank’s asset-management division, which included the private bank, from 2001 to 2009, built JPMorgan’s relationship with Epstein.

During that period, Epstein introduced Staley to dozens of wealthy people who became valuable customers of the private bank, a person with knowledge of the relationship told The Times. In 2002, Leslie H. Wexner, the billionaire founder of the L Brands retail empire that includes Victoria’s Secret and Bath & Body Works, opened an account at JPMorgan’s private-banking offices in midtown Manhattan. Bankers there received a stack of stock certificates worth roughly $1 billion that Wexner wanted to deposit, according to two private-bank employees who were there.

At the time, Epstein was the personal financial adviser to Wexner, who had empowered him to make numerous financial and investment decisions on his behalf. A person close to Wexner said the retail magnate’s relationship with JPMorgan predated his relationship with Epstein.

Epstein connected Staley to Glenn Dubin, who was then running the hedge fund Highbridge Capital Management. In 2004, Staley arranged for JPMorgan to buy a majority stake in the fund. The deal transformed JPMorgan’s asset-management division into a crucial profit engine for the entire company and propelled Staley to new career heights.

Staley is now the chief executive of the British bank Barclays. A Barclays spokesman declined to comment on Staley’s behalf.

At JPMorgan, Epstein’s accounts attracted scrutiny when the bank’s compliance team, beginning at the end of 2008, initiated a wide-ranging review of its customers.

That December, a hedge fund run by Bernie Madoff was revealed to be a multibillion-dollar Ponzi scheme. JPMorgan had served as Madoff’s primary bank for more than two decades, a role that prosecutors later said enabled him to “launder billions of dollars.”

Officials at the Office of the Comptroller of the Currency ordered JPMorgan to review its client roster to make sure that customers were not violating laws or depositing tainted funds at the bank, according to four of the former bank employees.

Compliance officers inside JPMorgan’s private bank were instructed to comb through the files of all clients to confirm that their paperwork was in order and that nothing about the nature of their lives or work could entangle the bank in illegal activity or otherwise damage its reputation.

The review lasted multiple years and Epstein’s accounts were flagged as potentially problematic, the former employees said. A team of company lawyers and compliance officers concluded that JPMorgan should eject him as a client. The exact nature of their concerns is unclear, but by then Epstein had been imprisoned in Florida and required to register as a sex offender.

Epstein, however, had loyal allies at JPMorgan. While he was incarcerated in 2008 and 2009, Staley visited him at the Palm Beach, Florida, office, where a judge had permitted Epstein to spend time during his sentence.

In 2009, Staley was promoted to lead JPMorgan’s investment bank. His successor as head of the asset-management business was Erdoes, regarded by her colleagues as an expert at wooing wealthy customers.

Presented with the compliance officers’ recommendation that Epstein be kicked out of the bank, Erdoes protested that he was a valuable client, according to the six former employees, some of whom were senior executives with direct knowledge of the events. Losing Epstein would mean potentially losing connections to other lucrative clients, she warned.

Four of the former employees said that they were under the impression Erdoes was acting in the interests of Staley, who maintained a strong relationship with Epstein.

The dispute over whether to jettison Epstein grew so heated that it became widely known in the bank’s executive suites, three of the former employees said.

Erdoes ultimately prevailed. A compliance officer left the bank after losing the battle, the three employees said.

In January 2013, regulators were unhappy with JPMorgan’s progress in weeding out potentially bad actors, and the Comptroller of the Currency’s office publicly ordered the bank to improve its processes for detecting money laundering and rigorously scrutinizing customers.

Later that year, Staley left JPMorgan and joined a hedge fund. Around that time, JPMorgan cut its ties to Epstein.

After being expelled by JPMorgan, Epstein moved his business to Deutsche Bank, where he opened dozens of accounts. Compliance officers at the German bank raised concerns about Epstein and transactions that they regarded as suspicious, and they tried to get the bank to end its relationship with him. As at JPMorgan, executives overruled their concerns.

Deutsche Bank stopped doing business with Epstein this June.

Erdoes, who joined JPMorgan in 1996, remains in charge of the asset-management division, which has more than $2 trillion in assets. She also has a seat on JPMorgan’s powerful operating committee.