May 22, 2014 07:01 PM

Former JPMorgan Executive Arrested by HK's Graft Fighter


Fang Fang

(Hong Kong) – The former chief executive officer of JPMorgan Chase & Co.'s China investment bank has been arrested by Hong Kong's Independent Commission Against Corruption (ICAC), two individuals close to the matter say.

Fang Fang was released on bail and told not to leave the city, one of the sources, who refused to be named, said.

The arrest of Fang could be linked to a U.S. investigation into JPMorgan for allegedly hiring the sons and daughters of senior Chinese government officials in exchange for business opportunities, the sources said. The bank has not been charged with any wrongdoing.

Fang said he was in Hong Kong when Caixin called him on May 19, but he refused to make any other comment. The ICAC, the former British colony's corruption fighter, also declined to comment.

Fang's most recent public appearance was on May 8 when he attended an activity for the Hua Jing Society. Fang is the founder Hua Jing, a youth association that mainly consists of the children of Hong Kong's banking elite.

Fang, 48, was educated at Tsinghua University in Beijing and at Vanderbilt University in the U.S. state of Tennessee. He started his career in investment banking in 1993 with Merrill Lynch.

Fang joined JPMorgan in 2001 and was promoted to vice chairman of Asia investment banking in late 2009. He was also head of the China investment banking team.

On March 24, JPMorgan announced Fang's retirement. He was replaced by Gong Fangxiong, managing director of JPMorgan Asia-Pacific.

The Hong Kong Economic Journal cited an unnamed source as saying the ICAC searched Fang's office on March 26 and took away documents.

Corruption Probe

New York-based JPMorgan is being investigated by authorities in the United States over whether it has violated the Foreign Corrupt Practices Act of 1977.

The Wall Street Journal cited a source as saying that the company provided emails from Fang to the U.S. prosecutors looking into whether the firm's recruitment practices brought JPMorgan business benefits.

JPMorgan withdrew from underwriting a US$ 3 billion Hong Kong listing by China Everbright Bank last year as an investigation targeted its hiring of Tang Xiaoning, son of Everbright chairman Tang Shuangning. The firm also faces questions over its recruitment of Zhang Xixi, daughter of former top railroad engineer Zhang Shuguang.

"A scandal is brewing and someone has to pay for it," a source close to JPMorgan said. The source said hiring the children of high officials is a common practice in many foreign investment banks in China.

The source said JPMorgan's Chinese team described the practices as the "Sons and Daughters Program" in work emails. Neither JPMorgan nor U.S. investigators have responded to questions regarding the "program."

An investment banker Caixin spoke to said some foreign investment banks in China hired potential clients' children in the hope of getting underwriting business for initial public offerings.

"Many investment banks have launched internal investigations and hired lawyers for help," the banker said.

Hong Kong signed an agreement on mutual legal assistance in criminal matters with the United States in 2000, under which the two sides agreed to support each other in criminal investigations. It is still unclear whether the ICAC's action on Fang is based on such agreement.

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