The Curious Case of Hernan Arbizu, Cont.

I've now seen various complaints that JP Morgan filed against rogue private banker Hernan Arbizu in the Southern District of New York, which between them clear up a few of the many questions in this case.

Firstly, the complaints say that Arbizu "is a citizen of Argentina", which will probably complicate any extradition case against him, especially given the state of US-Argentine relations at the moment. His job title was Vice-President and Senior Private Banker for the Argentina and Chile region, although his clients (according to JP Morgan) were exclusively Argentine. He was paid $300,000 per year, until he was terminated in May.

The first complaint against Arbizu, however, was not filed until June 13: why the delay? According to the Argentine press, JP Morgan only filed suit once its offices in Buenos Aires were raided and it became clear that a purported list of clients was going to appear in public. At that point, Arbizu would have caused substantially all of the damage that he could cause, but at least filing suit would help JP Morgan carve out the moral high ground and make it easier for the bank to distance itself from its former employee. Why was there no suit until then? Maybe JP Morgan didn't see much point in filing suit against someone who had already fled to Argentina, or maybe they were working with the FBI and didn't want to tip their hand as to what they knew.

Or maybe they hoped to be able to talk Arbizu into giving back the materials he stole. They were in touch with him: after he fled to Argentina,

Defendant called the head of JP Morgan's Latin American Private Banking division, Alvaro Martinez-Fonts, and confessed to his wrongdoing and stated that he feared returning to the United States would result in his arrest.

Arbizu was fired for an interesting reason:

Beginning in May 2008, JP Morgan discovered evidence that Defendant had effected unauthorized and illicit wire transfers between the account of a JP Morgan client and accounts at other firms.

The key words here are "at other firms": to hear Arbizu's side of the story, in the Argentine press, any unauthorized transfers took place only between his own clients at JP Morgan. In the first draft of the complaint, which was subsequently amended, JP Morgan said that Arbizu had accepted a job at Morgan Stanley; they've now removed that, and said it was a mistake. But there's still a hint that more than one institution is involved here, somehow.

It wasn't just wire transfers, either: JP Morgan also claims that Arbizu

copied, downloaded and collected proprietary and confidential information, materials, and assets belonging to JP Morgan and its clients: including, but not limited to, the names, addresses, social security numbers, telephone numbers and specific financial information pertaining to the JP Morgan clients whom the Defendant serviced.

On top of that, Arbizu's lawyer told JP Morgan's lawyer in Argentina on May 29 "that Arbizu possessed a list of all JP Morgan's Latin American clients".

JP Morgan is backing away from these allegations a little, now that a list of clients has been published - a list, incidentally, which is much bigger than just 13 names with $200 million (Arbizu's clients). The bank is pointedly refusing to confirm that any of the names on the list are its clients - but there's certainly an impression in Argentina that they are.

That impression, in and of itself, is financially harmful to JP Morgan - the complaints talk about "irreparable harm" and "incalculable" financial damage. JP Morgan managing director Luke Palacio filed an affidavit, explaining all the ways in which JP Morgan is now suffering:

(a) Disclousure of JP Morgan's trade secrets and confidential and proprietary information, including customer lists and business information;
(b) Loss of confidentiality of customers' records and financial dealings, loss of customer confidence and trust, loss of goodwill, and loss of business reputation;
(c) Damage to office morale and stability, and the undermining of office protocols and procedures; and
(d) Present economic loss, which is unascertainable at this time, and future economic loss, which is incalculable.

I've been told by a source outside the bank that JP Morgan CEO Jamie Dimon is spitting mad over this episode, and that more heads than just Arbizu's are likely to roll as a result of it. Private banks can and do come unstuck in Latin America: most famously, Citibank's Amy Elliot helped Raul Salinas, the brother of then-president Carlos Salinas of Mexico, launder tens of millions of dollars of drug money through Switzerland. But private banking is a peculiar thing: many clients and potential clients don't care too much about how squeaky-clean their bankers are, and will consider the exposure of confidential information to be a much greater breach of trust.

Has JP Morgan really suffered "irreparable harm", or is that just lawyers' hyperbole? My feeling is that there's a grain of truth there, and that it will be a long time until JP Morgan's private bank in Argentina gets much in the way of new clients.