Securities Law

Is it wrong--or a crime--to hire people because of elite connections?

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A Securities and Exchange Commission probe of a bank that hired the children of powerful Chinese officials is causing consternation on Wall Street and raising questions about the legality of the practice.

The SEC is investigating whether JPMorgan Chase provided a benefit to the foreign officials in return for business in violation of the Foreign Corrupt Practices Act, report the Wall Street Journal (sub. req.) and the New York Times DealBook blog.

Some past cases brought by the government involved hiring people for no-show jobs, the Wall Street Journal says. JPMorgan could be helped if can provide evidence that the job wasn’t created for the foreign officials’ children, that the children were qualified, and that they handled their duties well.

The government, on the other hand, will be looking for evidence of a quid pro quo or evidence of corrupt intent.

Financial firms often hire people with connections in hopes that it will open doors, DealBook says. “Given that many of the children of the elite have some of the best educations and thriving networks of contacts, it is hard to see how businesses are supposed to not seek them out, let alone turn them away,” the story says. “As hard to defend as the phrase may be, it is a reality of life, ‘It’s not what you know, but whom you know.’ ”

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