"In the summer of 2000, I asked a group of 100 people at a conference of spiritually committed people who would push a red button if it would immediately stop all narcotics trafficking in their neighborhood, city, state and country. Out of 100 people, 99 said they would not push such red button. When surveyed, they said they did not want their mutual funds to go down if the U.S. financial system suddenly stopped attracting an estimated $500 billion-$1 trillion a year in global money laundering. They did not want their government checks jeopardized or their taxes raised because of resulting problems financing the federal government deficit. Our financial profiteering and complicity is not limited to aristocrats and the elites who do their bidding. Our financial dependency on unsustainable economics is broad, ingrained and deep."
~Catherine Austin Fitts, Dillon Read & Co. Inc and the Aristocracy of Stock Profits
Table of Contents
I. Introduction: The Power of Shunning
II. What Is ESG?
III. Why Is ESG Important to You?
IV. Recent Growth in ESG
V. Toward a Coherent Vision for ESG
VI. An Example: JPMorgan Chase & Co.
VII. Turning the Red Button Green
VIII. ESG: What Should You Do?
I. Introduction: The Power of Shunning
"Monsanto can do anything they want to you, and put anything they want into your food. There's nothing you can do about it."
~Gov. Jesse Ventura
It was a beautiful spring day in 2010. I was having lunch with a money manager in Zurich. Schooled in Austrian economics, he understood the deterioration of the legal and financial systems in the United States. He focused on investing his and his clients' family wealth in real assets—whether in precious metals or companies that produced enduring value and dividends. He wanted to know if any of my clients would be interested in his fund.
The answer was no. The fund held an investment in Monsanto. The money manager was taken aback—he did not engage in "socially responsible investing" (SRI). I explained that this had nothing to do with SRI. This was a cultural phenomenon—a deep fury against centralizing trends for which Monsanto had emerged as the poster child. These trends included:
- Efforts to patent seeds, corrupt the seed supply, and control the food supply through genetically modified organisms (GMOs)
- The use of "substantial equivalence" to achieve regulatory approval for untested GMO products and technologies, resulting in widespread experimentation on uninformed humans
- Intrusive and expensive political lobbying and public relations to force regulators in Europe, Asia, and Latin America to accept GMOs and nanoparticles in their food supply
- Use of foreign aid and disaster capitalism to introduce GMOs in foreign war zones and disaster areas, with dramatic impacts on local farmers and agriculture
- Political targeting and firing of scientists whose research indicated serious problems with GMOs
- Increased presence in the food supply of glyphosate via pesticides, GMOs, and engineered nanoparticles—and strong correlations of glyphosate with rising rates of chronic disease
- Aggressive lobbying to change state laws to mandate "terminator" seeds (seeds genetically engineered to be sterile) and prevent farmers from saving and using their own seed
- Rumors of mercenaries in black vans arriving in the dark to assault farmers who resisted conversion to terminator seeds
- Entrapment of and lawsuits against farmers whose fields were corrupted by GMO drift from neighboring farms (such as Percy Schmeiser)
- Sabotage of labeling law efforts, making it expensive and difficult for consumers to differentiate between food and "Frankenfood"
- The suicide of 200,000-plus farmers in India that stalled the World Trade Organization's Doha Round and efforts to industrialize agriculture globally
My clients' rage was not the expression of a desire for socially responsible money management services. It reflected the desire of intelligent people not to spread a corporate disease that was draining time, health, and finances in their daily lives. At the deepest level, their aversion to investing in Monsanto shares reflected an intuitive understanding of biophysics—they wanted no energetic connection with something this repulsive.
Some would assume that investment by this particular money manager in Monsanto reflected either a deep ignorance of how the world really worked or a deep hypocrisy in his stated values. For many investors, the only thing worse than a hypocritical money manager is a clueless money manager. In this instance, the money manager looked into the matter and ultimately sold the fund's position in Monsanto.
It turned out to be a wise investment choice. The backlash against GMOs and glyphosate ultimately pummeled Monsanto's market and stock price. That backlash is now doing the same to the German company that purchased Monsanto, as U.S. civil litigation and judgements against Monsanto slowly reflect the reverberation of an anger that continues to grow. We see a similar trend having an impact on opioid manufacturers, as companies such as Johnson & Johnson are hit with large jury awards, and companies such as Teva Pharmaceutical agree to expensive settlements rather than risk a jury trial.
Laws protecting pharmaceutical companies from liability and requiring the American taxpayer to fund victim compensation are protecting vaccine makers in the United States—for now. However, the fury rising as a result of the autism and vaccine injury epidemics, and the efforts to politically mandate vaccine schedules that have exploded in size since corporate liability was waived, will eventually punch through—one way or another. So will the anger directed at the use of "fake science," abetted by a corporate media that is heavily funded by pharmaceutical advertising.
Ultimately, our adoption and maintenance of values and the application of those values to the institutions and activities around us are cultural. No system of laws and rules can enforce what is not inherently integrated into our beliefs and daily actions. Nor can a system of laws and rules that is out of alignment with our values ultimately endure.
This is why a healthy culture does not need lots of laws and regulations—nor an expensive infrastructure of police, prosecutors, and courts to enforce them. In a healthy culture, everyone understands and shares the group values and does their best to behave productively. Pressure on those behaving unproductively is immediate and happens in our daily lives. Historically, shunning has been one of the most powerful and effective tools to exert this pressure—and explains why transparency of government and other shared resources in combination with free markets can make such an enormous difference.
Consider how the climate change debate keeps being distilled down to the personal behavior of those promoting climate change action. If someone believes in climate change, why are they flying around in a private jet? Why are they buying a $15-million-dollar mansion by the ocean?
For cultural values to work, and for those values to translate into effective shunning of people, products, and enterprises, we must be able to see what is going on around us and be free to exercise our choices in a marketplace. With the escalation in secrecy of central banks, government, and shared resources—and the efforts of centralized leadership to replace markets with technocracy—we are experiencing a rising level of corporate and investment monopolies and inequality. It is hardly surprising, then, that the leaders of those monopolies would seek to promote greater powers for themselves to define our values—and to use our savings (in the manner of their choosing) to finance the values they define for us.
Welcome to the explosive growth of environmental, social, and governance (ESG) investing—where technocracy and capital controls collide with our savings and use of resources in the push for ever greater central control.
ESG, as currently promoted, is a mechanism that Mr. Global is using to integrate technocracy into investment and corporate operations. It is a clever effort to hijack the instinct to shun before it does damage to centralized systems. However, with some spiritual and cultural judo on our part, it is also a mechanism that we can use to integrate our values and our investments. It can be used to extend the Golden Rule—"do unto others as you would have them do unto you"—to also mean "finance unto others what you would have them finance unto you."
Oh goodie—another powerful escalation in the battle with Mr. Global for the soul of the planet! Can we take responsibility to lead in a more positive direction while facing and managing the real risks before us? Here goes!
II. What Is ESG?
"[The technetronic era] involves the gradual appearance of a more controlled and directed society. Such a society would be dominated by an elite whose claim to political power would rest on allegedly superior scientific know-how. Unhindered by the restraints of traditional liberal values, this elite would not hesitate to achieve its political ends by using the latest modern techniques for influencing public behavior and keeping society under close surveillance and control."
~Zbigniew Brzezinski, Between Two Ages: America's Role in the Technetronic Era, cited by Patrick M. Wood in Technocracy Rising: The Trojan Horse of Global Transformation
What is ESG? ESG stands for the environmental, social, and governance criteria increasingly being applied to corporate operations and investments. The stated goal is to ensure that companies are good citizens, with the implication that investors will hold them accountable if they are not. For the time being, ESG applies primarily to securities investment, although it is moving into private equity and real estate as well.
Our 3rd Quarter 2016 Wrap Up: Investment Screening: Can We Filter for Productive Companies? provides an overview and history for those who are new to this area of investment criteria and screening.
The Solari Report has a wealth of additional background information to help you understand ESG. One resource that I recommend in particular is our interview with Patrick Wood on technocracy. Here is our Just a Taste excerpt:
Centralizing forces are weaponizing ESG to implement technocracy. A key tactic is to encourage the numerous people who have legitimate concerns regarding the environment and inequality to support climate change initiatives with respect to investment. What does the ESG promotion of climate change initiatives achieve? Among other things, it is a way of marketing a radically lower energy and resource footprint in the face of pressures from a growing global middle class and from extraordinary monetary inflation created by the central banks. Climate change is also being used to build support for a global taxation system—a necessary step for building a global government operating with much greater levels of central control. Throw in transhumanism, and ESG becomes quite a powerful tool in the effort to override the rights of individuals, families, and communities and facilitate corporate ownership and control of land, real estate, and natural resources.
What ESG is not yet being used to do is to address the corruption of the most basic laws related to financial integrity and disclosure. It has not addressed the massive mortgage securities fraud that resulted in the bailouts or significant investor losses on Chinese securities (see the documentary The China Hustle). It has not addressed the U.S. Department of Justice targeting of U.S. rating agencies that took the step of downgrading the U.S. credit rating—S&P/McGraw Hill and Egan-Jones. ESG has ignored FASAB 56. If you have not read our 2018 Annual Wrap Up: The Real Game of Missing Money, please consider it essential reading to understand what the current application of ESG is all about. Start with "Caveat Emptor: Why Investors Need to Do Due Diligence on U.S. Treasuries and Related Securities."
If one of the primary goals of ESG is to express concern about the environment, ESG's disassociation from environmental basics is as profound as its disassociation from financial basics. It is unusual to find any mention of the impact of GMOs, nanoparticles, or other forms of experimentation on the natural world, insects, other species, or our food supply—or of the impact of nuclear testing, including in the upper atmosphere. Rarely, if ever, do I hear mention of global spraying, HAARP, EMF radiation, or the environmental impact of the U.S. and global militaries, which are now spending over $2 trillion globally according to official accounts (and much more, no doubt, in secret). Why are cows proclaimed more dangerous to the environment than a new arms race? The fact is, cows are not an environmental danger. Rather, controlling animal protein is a valuable spot on the global monopoly board. (See "An Intelligent Conversation about the Environment".)
If we were to portray the world of investment as a tree, ESG appears to be massively complexifying selected twigs, while ignoring the rotting in the tree trunk and roots. As the U.S. government systematically refuses to obey its own financial management laws, arranges for the presidents of rating agencies to be fired if they dare suggest there are credit problems, and essentially takes the majority of the U.S. securities market dark, the ESG world remains silent—all the while lobbying to add more complex non-financial disclosure regulations.
This begs the question: If you are not going to respect or follow the disclosure rules in existence, why layer on more rules? Is layering on more disclosure requirements a game of distraction? Is it another way to give large companies a competitive advantage through more regulations? Why does an emotional panic attack about climate change negate the need for basic accounting or an independent rating process?
The extent of the disassociation found in many ESG efforts is significant.
III. Why Is ESG Important to You?
"To many executives, the word sustainability is a cue to stop listening. One way to begin changing the perception of sustainability is to stop using the word."
~Lawrence M. Heim
You're busy—why should you care about the growth of ESG investing? After all, talk about sustainability and social responsibility has been putting busy people to sleep for decades. Here's why you should care.
First, technocracy—including weaponized ESG—is headed toward your home, workplace, and community in the form of a tsunami of micromanaging laws and regulations. If it does not eat up your time or destroy your business, it will certainly raise your expenses and cause dissension among those around you. This is a major wave—and you need to be prepared to navigate it. That starts by understanding it and exploring the impact that it may have on your individual situation.
Second, while large corporations and investors may be intent on weaponizing ESG, there is no reason that honest and ethical people cannot redirect ESG in a more positive direction. The ESG industry has attracted an impressive number of intelligent, capable data and financial analysts and money managers interested in providing services to investors who really do want to align their investments with their values. There is significant and sincere market capacity, interest, and demand. This is an opportunity to evolve our financial and investment systems in a direction that nurtures human civilization.
The goal of this discussion is to give you some ideas about how to do that. What's good for the goose can be good for the gander—so now is the time to get into the thick of things.
IV. Recent Growth in ESG
"The story of ESG investing began in January 2004 when former UN Secretary General Kofi Annan wrote to over 50 CEOs of major financial institutions, inviting them to participate in a joint initiative under the auspices of the UN Global Compact and with the support of the International Finance Corporation (IFC) and the Swiss Government. The goal of the initiative was to find ways to integrate ESG into capital markets. A year later this initiative produced a report entitled 'Who Cares Wins,' with Ivo Knoepfel as the author. The report made the case that embedding environmental, social and governance factors in capital markets makes good business sense and leads to more sustainable markets and better outcomes for societies. At the same time the United Nations Environment Programme Finance Initiative (UNEP/Fi) produced the so-called 'Freshfield Report' which showed that ESG issues are relevant for financial valuation. These two reports formed the backbone for the launch of the Principles for Responsible Investment (PRI) at the New York Stock Exchange in 2006 and the launch of the Sustainable Stock Exchange Initiative (SSEI) the following year."
~ George Kell, "The Remarkable Rise of ESG"
The Global Sustainable Investment Alliance is a collaboration of membership-based sustainable investment organizations around the world. It has published a Global Sustainable Investment Report every two years since 2012, including a report in 2018. The Alliance documents the growth of ESG investing in Europe, the U.S., Australia, New Zealand, and Japan and is tracking the development of such networks in Latin America and Africa. The Alliance does a valuable service by making its reports available to the public. You can access the 2018 report here.
As described in the 2018 report, managed investment assets subject to ESG criteria have grown 34% from $22 trillion to $30 trillion.
Europe continues to maintain the highest percentage of assets subject to ESG criteria.
Almost all types of application strategies reflected growth during the period.
The leading application of ESG criteria continues to be in the equity markets. However, significant fixed income assets are also subject to ESG criteria. To date, real estate subject to ESG criteria is relatively small; it will be interesting to see how that changes as more real estate securitizes through global REITs and other publicly traded investment vehicles. (For more on growth in publicly traded real estate, see our 3rd Quarter 2018 Wrap Up: Megacities and the Growth of Global Real Estate Companies.)
Numerous regulators and industry associations continue to encourage the use of ESG. Their support for ESG is steadily growing at the very time they are failing to address a steady deterioration in compliance with financial laws and traditional standards of accounting and disclosure related to governments and corporations as well as the securities market. Watching the evolution of ESG, one wonders if this is not a campaign in complexity as “whiteout.”
In 2014, the European Union adopted a directive requiring large companies (approximately 6,000 listed companies, banks, insurance companies, and other companies designated by national authorities as public-interest entities) to provide non-financial disclosure on environmental, social, and employee responsibility, human rights, and anti-corruption and bribery matters. This occurred in the same year that Dutch auditors claimed that NATO members could not determine how their funds were being spent in the annual $1 trillion of NATO spending, indicating that NATO's expenditures were largely classified. This appears to be another example of ignoring the failure to comply with existing financial disclosure standards while creating additional non-financial disclosure requirements.
After all, if something is not working, then just require more!
In 2015, the Paris Climate Agreement included a commitment to make financial flows consistent with a lower carbon world and sustainable development. However, President Trump snatched the United States from the jaws of that commitment in 2017, much to the dismay of the financial interests keen on global taxation.
In fiscal 2015, the U.S. federal government was missing $6.5 trillion in accounts at the Department of Defense (DOD) and $278.5 billion at the Department of Housing and Urban Development (HUD). (See documentation at https://missingmoney.solari.com.) During 2015, the U.S. Department of Labor (DOL) confirmed that incorporating ESG into investments is compatible with fiduciary duties under the Employee Retirement Income Securities Act (ERISA). DOL has said nothing, to my knowledge, regarding continued purchasing of Treasury securities by pension funds and retirement accounts—or the securities of related banks and IT contractors—despite the possibility that significant funds may be illegally leaving federal accounts through the back door and despite bullying of rating agencies to ensure that U.S. Treasury and related securities maintain high investment grade ratings.
As of 2017, signatories of the United Nation's Principles for Responsible Investment (PRI) have grown to more than 1,750 from 50 countries, representing approximately $70 trillion. The UN launch of PRI in 2006 coincided with the takedown of the U.S. mortgage bubble and the beginning of the financial crisis.
Recently, the EU published new requirements for managers of large asset pools, who must publish their policies on the integration of sustainability risks into their investment decision-making process by 2020. Asset and fund managers will be required to have sufficient resources for the assessment of sustainability risks. Remuneration policies will be tied to sustainability targets. Investment policies and documentation will need to be reviewed and amended.
During this period, the private sector also contributed mightily to the complexification process.
The Sustainability Accounting Standards Board (SASB) was founded in the United States in 2011 to develop additions to the accounting principles used in financial reporting in the U.S. A review of the Board's founders and leadership makes the reader wonder to what extent this was funded by a teeny-weeny reinvestment of the lush profits enjoyed by those founders and supporters as a result of the mortgage bubble and the subsequent bailouts that cost the taxpayers $24+ trillion. Most of those trillions had rolled into Wall Street by that time. There is no reference that I can find in the Board's literature to the fact that the basic accounting standards had failed to the tune of $36 trillion—$24 trillion of bailouts and what was then approximately $12 trillion missing from U.S. government accounts. Again, the focus seems to be on further complexifying the reporting requirements rather than getting the traditional requirements to work.
It is not clear why the SASB founders wanted an alternative to the Global Reporting Initiative (GRI) originally founded in the United States in 1997. The GRI is now based in Europe and has become an international independent standards organization to help "businesses, governments and other organizations understand and communicate their impacts on issues such as climate change, human rights and corruption." Add the standard-setting involved at the PRI, the OECD, and a variety of other parties, and we have quite a collection of groups mapping out human and planetary ecosystems without any apparent interest in the collapse of traditional accounting standards or the explosive secrecy masking growing military and intelligence spending managed by large publicly traded corporations and banks.
On October 1, 2018, three days before the Federal Accounting Standards Advisory Board adopted Statement 56—with the approval of both the Government Accountability Office (for the Congress) and the Office of Management and Budget (for the White House)—a group of large investors petitioned the SEC to develop ESG reporting requirements. Attorney Betty Moy Huber reported:
Investors Petition the SEC to Develop ESG Reporting Requirements.
"A group of investors representing more than $5 trillion in assets under management petitioned the U.S. Securities and Exchange Commission on October 1, 2018 to develop a comprehensive framework that would require public companies to disclose environmental, social and governance (ESG) aspects relating to their operations. Petitioners include CalPERS, the New York State Comptroller and the U.N. Principles for Responsible Investment. The 19-page petition, available here, cites increasing demands by certain investors for information to better understand the long-term performance and risk management strategies of public companies. The petition notes that the voluntary 'sustainability reports' that some companies have produced in response to these demands are insufficient and instead, an SEC-mandated comprehensive framework for clearer, more consistent and more fulsome, reliable and decision-useful ESG disclosure (above and beyond existing SEC disclosure requirements) would meet this demand. The petition does not lay out a framework for the SEC to consider other than a suggestion that the climate risk disclosure framework issued by the FSB's Task Force on Climate-Related Financial Disclosure could be used by the SEC 'as a starting point in promulgating its own Framework for comprehensive ESG disclosure.'
The petition comes on the heels of Senator Warren's September 14, 2018 bill, the Climate Risk Disclosure Act, which if passed, would require the SEC to issue rules requiring public companies to disclose climate change-related risks, including climate change scenario analyses similar to those called for by the FSB Climate Task Force referenced in the petition, as well as companies' direct and indirect greenhouse gas emissions, the total amount of fossil fuel-related assets they own or manage and their management strategies related to physical risks posed by climate change."
Not to be outdone by the indifference of Senator Elizabeth Warren (D-Massachusetts) and several of the largest pension funds in the United States to FASAB 56 and the federal government's decision to take the majority of the U.S. securities market dark, U.S. CEOs then went into high media gear in 2019.
First came the annual CEO letter from Larry Fink, the Chairman of BlackRock, one of the largest U.S. investment firms, touting long-term thinking and sustainability priorities:
"BlackRock's Investment Stewardship engagement priorities for 2019 are: governance, including your company's approach to board diversity; corporate strategy and capital allocation; compensation that promotes long-termism; environmental risks and opportunities; and human capital management. These priorities reflect our commitment to engaging around issues that influence a company's prospects not over the next quarter, but over the long horizons that our clients are planning for."
I have worked with BlackRock and am familiar with a few of the tactics they used to achieve a quasi-monopoly position in the asset management industry. So, I note their silence on the adoption of FASAB 56 and the failure of traditional accounting and financial controls to prevent massive mortgage fraud and a financial coup d’état. Plus ça change, plus c’est la même chose. ("The more things change, the more they stay the same.")
In August of 2019, the Business Roundtable, an association of CEOs of large U.S. companies, published a "Statement on the Purpose of a Corporation":
Statement on the Purpose of a Corporation
Americans deserve an economy that allows each person to succeed through hard work and creativity and to lead a life of meaning and dignity. We believe the free-market system is the best means of generating good jobs, a strong and sustainable economy, innovation, a healthy environment and economic opportunity for all. Businesses play a vital role in the economy by creating jobs, fostering innovation and providing essential goods and services. Businesses make and sell consumer products; manufacture equipment and vehicles; support the national defense; grow and produce food; provide health care; generate and deliver energy; and offer financial, communications and other services that underpin economic growth. While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders. We commit to:
- Delivering value to our customers. We will further the tradition of American companies leading the way in meeting or exceeding customer expectations.
- Investing in our employees. This starts with compensating them fairly and providing important benefits. It also includes supporting them through training and education that help develop new skills for a rapidly changing world. We foster diversity and inclusion, dignity and respect.
- Dealing fairly and ethically with our suppliers. We are dedicated to serving as good partners to the other companies, large and small, that help us meet our missions.
- Supporting the communities in which we work. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses.
- Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate. We are committed to transparency and effective engagement with shareholders.
Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country.
From Business Roundtable
Nowhere in the Business Roundtable presentation was there any mention of the serious criminal and civil violations committed by some of the financial institutions and companies represented on their board and membership—or of their extraordinary dependency on federal government spending and credit which, in turn, depends on missing money, bailouts, secret books (now institutionalized with FASAB 56), and skyrocketing debt. Indeed, some of the financial institutions represented by the Roundtable served as leading members and agents of the New York Fed—the depository for the U.S. government when the $21 trillion went missing.
Whatever has prompted public regulators and private companies and associations to issue these statements, there is little doubt that the rush of regulators and CEOs to get on board continues to fuel significant growth in non-financial disclosure regulatory requirements. It remains to be seen what the response of the retail investor will be, or of the many nations outside of the G7 areas of influence. But after several decades of explosive amounts of financial fraud and corruption, it is hard for experienced investors to be lectured to regarding "values" by the leaders of monopolistic enterprises, many of whom have been both perpetrators and beneficiaries of the fraud and corruption.
It's a bit like Tony Soprano lecturing his HUD mortgage fraud victims on the importance of their adopting a more modest lifestyle and learning to take better care of their neighborhood.
V. Toward a Coherent Vision for ESG
"Reality is that which, when you stop believing in it, doesn’t go away."
~ Philip K. Dick
A positive development regarding ESG is the increased availability of talented people interested in helping enterprises better understand their dynamic economic relationships in a manner that can improve risk management and productivity. One of the benefits has been an increased investment in the analytics software and data that can help. However, even with these improved tools, defining and applying ESG criteria is not as easy at it sounds. Critical issues include differences in values, maps of reality, and goals; the significant impact of negative returns in government and central banking operations (critical aspects of our existing economic and financial models); the growing pressure on resources; and the secrecy surrounding our planetary governance system.
People of different cultures and faiths have different values.
A Muslim or Buddhist would likely shun investment in liquor and wine companies, whereas I as a Christian would not, unless those companies depended on illegal tactics such as aggressive marketing to target underage children or the use of entrainment in their digital marketing campaigns.
Someone who practices Sharia law might object to banks that profit from usury. However, large U.S. banks have been instrumental in changing the usury laws and stripping normal consumer protections from student and consumer lending; their boards and management appear to be quite comfortable engaging in practices that were once illegal. The result is that the largest U.S. banks have a low cost of capital—thanks to taxpayer-supported credit—while the average American not only has an exceptionally high cost of capital but also bears the costs of bailouts, currency debasement, and the federal credit used by the banks. These same banks have expensive and glossy sections in their Annual Reports and on their websites regarding their commitment to social responsibility. They see no conflict; it's all part of "caveat emptor"—buyer beware. It is one of the reasons I sometimes wonder if the War on Terror is really just a "war on people with oil who oppose usury" to allow clever arbitrage and "debt control" to follow the smartphones globally without interference from religious or traditional values.
Ordinarily, differences in values are a problem that markets are excellent at addressing. Let every participant engaging with "other people's money" fully disclose their practices and let investors simply express their values with their choices in a free market—just as my former clients did regarding Monsanto.
The challenge comes when savings become highly centralized into professionally managed pools of capital. Professional investors are then left with the task of choosing sets of values with highly unique results. For example, a company that enjoyed rich profits from the mortgage bubble and related securities fraud—which resulted in trillions in bailouts, millions of foreclosures, and significant unemployment and bankruptcies—is deemed to be "women-friendly" because each year it hires a few dozen female graduates from Ivy League business schools.
The application of ESG criteria can get very complicated very quickly. If you—either as an investor or as a business owner—wish to apply ESG criteria, you first need to determine your values and what is important to you. That also means determining what is strategically important and what is not.
A former client of mine had a large deposit at a local community bank that had opened with a strategy centered on progressive values. The bank did a significant market research study on whether or not—and how—they could offer "green" products. The study’s results demonstrated that while many of their clients wanted green products, they would never fund the expense of providing them. In short, "green" was a style choice, but not an economic one.
This is one of the reasons I often tell the Red Button Story (see video at the top). Some of our values are relative. We don't want narcotics traffickers targeting children in our community. However, we will tolerate it to avoid our taxes going up or our government checks disappearing—or because we are afraid of offending the people who control the operations and the accumulated profits. We will vote for the politicians who provide us a cover story. "We are good [pick one: Americans, Catholics, Episcopalians, Jews, Muslims, progressives]. It is not us doing it. It is those bad people over there." A satisfying cover story combined with government largesse has been a winning political strategy.
Such tradeoffs are one of the costs of highly centralized systems. Different groups have different values, and each group engages in a multiple personality disorder between their stated values and the values they actually practice when they are asked to price out their willingness to compromise—both on a transparent basis and on a basis where good marketing supports their ability to pretend.
All of this makes defining and prioritizing our values complicated.
The second challenge in the application of ESG is finding a common understanding or "map" of reality. Often, disagreements about values turn out to reflect a difference in maps of reality.
The Solari Report recently published an excellent interview with Dr. Mark Skidmore called "Navigating Reality," which addresses the issue of operating in a world where perceptions of economic, political, and social reality differ significantly. The explosion in information technology and globalization, by its very nature, means that we have people with differing languages, experiences, education, and points of view colliding in what Michael Ventura once described as "the psychic storm of our own being."
Dr. Skidmore used four graphics to show four possible maps of an individual's reality.
One of the challenges of building an accurate map of reality is that many of the most powerful systems used to govern and control are invisible. Monetary and fiscal policy, for example, has been used in the United States to engineer a wide discrepancy in costs of capital. A New York Fed member bank may borrow at 0%-2% using the federal credit, while it can charge the citizens who provide the backstop for such credit 12%-30%. Remarkably, many of the bank’s customers will not connect the dots because cost of capital is a relatively invisible phenomenon for most people.
Surveillance capitalism has been a source of great wealth for the tech industry and investors. However, most of the people who are surveilled do not "see" this happening to them. They do not see how others are compromising their privacy and intimate relationships to make money and build companies. They do not see how this surveillance and the related data harvest and manipulation are draining local economies and subverting their political impact broadly.
The widespread application of entrainment, subliminal programming, and mind control technologies along with significant investment in propaganda and distraction make it difficult if not impossible for many people to successfully navigate media and financial markets—particularly when they do not appreciate the existence of such technologies nor understand the techniques at play. The importance of mind control to the creation and maintenance of "official reality" is one of the reasons we chose Truthstream Media's The Minds of Men as our documentary of the year for 2018.
There are countless other examples of invisible factors—certainly many you have experienced personally. You will find significant attention given to these on The Solari Report. Superior intelligence on invisible control techniques can significantly improve personal productivity after you get over the initial shock of discovering that your existing map of the world requires a refresh.
Most ESG efforts are struggling to apply their criteria within one or more "official realities." As change accelerates, reality is dynamic—making their task complicated, if not impossible. The most powerful contributor to map confusion is the steady growth of the national security state globally since 1947. Secret black budget accounts, spending, and operations, as well as deeply invasive surveillance and mind control, have resulted in much faster growth in the secret part of the economy and financial markets than in the open part. The issuance of FASAB 56 epitomizes the extent to which the secret side of the economy has institutionalized the lack of any accountability or disclosure. Meanwhile, the investment industry simply adopts the pretense that everything is fine.
When millions of global institutional and retail investors have differing values—both stated and real—and also have divergent maps of reality (which often also diverge from actual economic reality), the application of ESG criteria can be not only quite messy but quite fractious as well.
It is like a symphony orchestra trying to play in the dark, with each player having a different score.
In any system of laws, regulations, contracts, and transactions, someone needs to enforce. In the investment world, capital only flows into an activity where enforcement is possible. Good enforcement is an essential part of achieving successful investment returns.
One of the key questions under any governance system is, therefore, "Who enforces?" The central banking-warfare model that has defined the global economy for the last 400 years depends on military and other forms of government enforcement. The central banks print currency—and the government (with both military and intelligence arms) makes sure people use it. Ultimately, the model relies on force to make the currency and monetary system go.
In theory, the more a society can depend on culture to enforce, the less need for expensive enforcement. Years ago, my Bible class teacher asked me to explain the Solari model. When I did, she responded, "Oh, you are making it much too complicated. It's in Leviticus. It says we have to take care of the land, of each other, and of ourselves." The more we do, the less we need police to write speeding tickets or jails to lock up troublemakers.
Unfortunately, reliance on culture for enforcement is shrinking, while spending for military, intelligence, and law enforcement—including related weapons manufacturing and IT and communication systems—continues to grow, building the largest, most powerful industry on the planet. Official defense expenditures have surpassed $2 trillion a year. These expenditures are matched by deeply invasive applications of new technologies in unprecedented public-private partnerships increasingly controlled and operated by large corporations.
A significant portion of military budgets is financed with sovereign government debt denominated in fiat currencies. Operating on this model creates financial incentives that are often win-lose between the parties, as opposed to an equity model that promotes win-win incentives. The Western world became deeply addicted to debt when the central banking-warfare model made it possible to finance wars on a "fight now, pay later" basis. As time has gone by, we also have found ways to replace many military wars with economic wars and to control through financial means. For example, consider the number of times you've heard a U.S. president use the word "sanctions" in the last two decades.
Since World War II and the emergence of the Bretton Woods global trade system, military and intelligence agencies have engaged in significant covert surveillance, operations, and warfare to engineer elections, regime change, markets, and the allocation and management of natural resources. The growth of government secrecy has been matched by an explosion of secret funding, which has contributed to a national security infrastructure that remains hidden from view and has at its disposal powerful, invisible technology. This has occasioned the emergence of the term "deep state" to refer to integrated networks of secret societies and bureaucracies that manage secret money, secret technology, and secret armies—and invariably lead back to global power centers such as the District of Columbia, Vatican City, the City of London, and other financial centers. In addition, globalization has facilitated a fusion of transnational organized crime networks, with Asian, Eastern European, and Emerging Markets criminal networks becoming more powerful players in the global markets.
Indeed, it's all in the movies. Here are several of my favorite examples:
The Good Shepard describes the role of secret societies and the CIA in the deep state.
Enemy of the State describes governmental surveillance used to centralize political and economic control.
If you have listened to whistleblowers like Edward Snowden or Solari Report interviews with retired NSA technologist Bill Binney, you will understand the extent to which this infrastructure is run by private telecommunications, information technology, social media, and defense companies that feature prominently in ESG managed funds.
Independence Day hints at the extraordinary infrastructure made possible by secret federal accounting and appropriations.
And Kill the Messenger describes CIA drug dealing during the Iran-Contra period and the media role in covering it up.
Questions about secret funding have grown, as frustrated auditors have repeatedly failed to account for expenditures in the U.S. Defense Department and NATO and missing money at HUD—and mortgage fraud has resulted in trillions in bailouts.
With over $24 trillion in bailouts and $21 trillion missing from U.S. accounts, the U.S. government has now implemented FASAB 56, claiming to authorize secret books. This is a process that The Solari Report has covered extensively as the "financial coup d’état."
In the 1990s, I led a joint venture between my company and the Department of Labor. Working with a group of public and corporate pension fund leaders, we looked at the advisability of economically targeted investments designed to help selected neighborhoods, primarily in the U.S. We concluded that the necessary reform was to convert U.S. government investment and spending by place—in 3100 counties around the country—to a positive return on investment from a negative return on government investment. Increasingly, we found that government investment was organized to subsidize covert operations, central control, and the stock market—as opposed to optimizing local economies. Trying to solve the resulting waste and inequality by asking private investors to address the symptoms of government waste and criminality was not a good use of private capital.
Inspired by the extraordinary wealth-creating possibilities of reengineering government investment at the local and county levels, I created a software tool to make government investment by place transparent. The U.S. government did not like that plan. They raided the company's office, seized the software, and kept it under court control for six years. When I finally was able to get it back, I discovered the most valuable pieces were missing. By that time, however, movies like Enemy of the State had educated me to the fact that players who control the local economy in 3100 counties control the federal credit. And that control enables those players to engineer market share from small business to big business. Globalization was upon us, and the profits flowing from centralization were glorious for those involved.
This is one of many reasons why it is so important to understand what globalization was about from the beginning. And no one did a better job of explaining what would happen after the U.S. adopted the latest GATT Round and launched the World Trade Organization than Sir James Goldsmith in 1994.
Globalization created a Harry Potter world in which the "witches and wizards" had access to institutional capital and government credit, and understood how to engineer huge and hideous capital gains for themselves and their syndicates. This left the "muggles" to struggle to survive as their small businesses operated with a 20 times greater cost of capital in neighborhoods overrun by mortgage fraud and surveillance capitalism.
Nothing has changed since that project in the 1990s. If government investment is engineered to serve political goals, including centralization of control—much of it through large corporations, banks, and financial institutions—and that is resulting in environment damage, inequality, and corporate monopolies, why do we think that ESG disclosure and investment by the perpetrators and their monopolies will improve our situation?
If we want to apply ESG criteria to investment, then we must address the fundamental role of government and the national security state, including secret money, secret armies, and secret societies. That means that concerns about the climate impact of cattle need to be compared with the impact of F-35s, global spraying, HAARP, weather manipulation, and nuclear testing. We cannot have an intelligent conversation about the environment in a world where the majority of the planetary balance sheet operates behind a wall of government secrecy and uses force to command an extraordinary amount of planetary resources while operating at a negative return on investment to citizens and taxpayers. Indeed, the degradation of the environment is the proof that government returns are systematically negative.
Author Thierry Meyssan at the Voltaire Network has spoken eloquently about efforts to shift environmental problems away from governments and onto individuals:
The tree that hides the forest
In international summits, no one attempts to assess the energy cost of the wars in Afghanistan and Iraq, including daily airlifts to transport United States logistical support to the battlefield, including the soldiers' rations.
No one measures the living areas contaminated by depleted uranium ammunition from the Balkans to Somalia through the Greater Middle East.
Nobody mentions farmland destroyed by fumigation as part of the war on drugs in Latin America and Central Asia; nor those sterilized by the spraying of Agent Orange, from the Vietnamese jungle to Iraqi palm groves.
Until the Cochabamba conference, the collective consciousness has obviously forgotten that the main environmental damage is not the consequence of particular lifestyles or civil industry but corporate wars to allow multinationals to exploit natural resources, and the ruthless exploitation of these resources by the multinationals to supply the imperial armies. Which brings us back to our starting point, when U Thant proclaimed "Earth Day" to protest against the Vietnam War.
The existing central banking-warfare model is reaching a crossroads. Sovereign debt as a percentage of GDP is at significant levels and rising. More than a few governments, including the United States, are effectively in a debt spiral. In addition, the credit quality of numerous governments is threatened by a breakdown of the Treaty of Westphalia system that developed with the central banking-warfare model—that a government would maintain a monopoly on force within its jurisdiction. The privatization of force into mercenary armies and banks, defense companies, and private corporations that can field private armies signals the end of government monopolies on force within their jurisdiction.
If the Mexican army is defeated by drug cartels and has to concede municipalities to the cartels, what are the implications for Mexico's sovereign bond holders?
Growing amounts of debt, spending the proceeds of debt, taxation in secret and in a manner that has a negative return on investment, and the breakdown of the Treaty of Westphalia system—all of these are signs that the failure of the central banking-warfare model without a sensible replacement is the 800-pound gorilla in the ESG universe.
Thus far we have identified challenges that include differing values and maps and a reluctance to address the negative returns resulting from some governments' and central banks' operations. Challenges also include the differing goals of various ESG efforts. It would be wonderful if everyone's aims for the application of non-financial disclosure were well-intentioned, but they are not. Let's look at some of the goals at play.
The millennial generation is clearly frustrated with environmental degradation, inequality, and government and corporate corruption. Consequently, attention to ESG criteria presumably will attract younger people as customers, employees, and investors who are interested in greater system-wide responsibility and performance.
There is a push to outsource more government operations and responsibilities to private companies and financial institutions. The more that corporations come to be considered socially responsible and capable of thinking "ecosystem wide" and long-term, presumably the more the body politic will accept increased privatization. The marketing of privatization must override the fact that, certainly in the United States, the more dependent governments become on private companies, the more money goes missing and the more civil society deteriorates; taxpayers also will likely pay more in taxes and enjoy fewer employment opportunities when private corporations and financial institutions take over functions formerly provided by government. Note that the corporate ESG hoopla has been matched by an effort in both the corporate and independent media to criticize and diminish the importance and reputation of government employees and the civil service.
Unfortunately, in some cases, ESG is being used to market the adoption of fascism—the fusion of corporations and government into a non-accountable state.
3. The Best Defense Is a Good Offense
Large multinationals have had quite a run over the last two decades as globalization allowed a great deal of free reign. Taxation is a perfect example. Large multinationals were able to shift revenues and operations between jurisdictions—arbitraging tax treatments, engaging in transfer pricing, and enjoying the full benefit of offshore systems. Now a backlash is building, not unlike the backlash against Monsanto. Governments are cooperating to protect their revenue flows. The business press and some of the more far-sighted investors are concerned about the growing monopolistic behavior by large corporations that benefit from political largess and bailouts at the same time that productivity is falling. As we described in the 2nd Quarter 2016 Wrap Up, falling productivity can and will destroy a society. Falling productivity is proof that the current model is not working.
This backlash is growing as the global Bretton Woods trade system established after World War II unravels. Political campaigns are looking for scapegoats and entertaining a growing number of radical proposals. Embracing ESG is a way of trying to white-out complicity and get ahead of the backlash while establishing a brand concerned about solving social and economic ills.
Senator Warren's efforts—in concert with a group of the largest pension fund investors—to promote SEC disclosure on climate change at the same time the Congress and White House were adopting FASAB 56 are no accident. It is political whiteout of the first order. Senator Warren is assisting in the permanent destruction of traditional disclosure that will significantly benefit the institution that employed her for many years: the Harvard Corporation.
The global leadership believes that information systems will make it possible for them to replace markets and democratic processes with technocracy—essentially managing individuals with complex surveillance and control systems highly dependent on AI and software. Using climate change to layer on more complicated rules and regulations (not to mention the onerous taxes that may be ushered in with them) is a leading technique for making technocracy go. Although adding layers of rules and regulations is expensive (as is the related enforcement and litigation), these expenses typically can be amortized by large enterprises, which can overwhelm and bankrupt small businesses and farms and independent professionals and their practices. Used in this manner, ESG can and will facilitate increased centralization of economic activity.
The rollout of technocratic systems looks different in various countries. However, whether it is the "yellow vests" in France, farmers in the Netherlands, Belgium, and Germany, street protestors in Hong Kong, or the "deplorables" who voted for Trump and Brexit, we are seeing a wholesale rejection of central control and its assault on highly productive small businesses, small farmers, property rights, and freedom of speech. Millions of people are prepared to change to protect their environment and their culture, but they are not willing to endure lawlessness, corruption, and the intentional destruction of their productivity and savings to support central control.
5. Aligning Investments with Values
In contrast to the technocrats, many financial professionals understand the power and potential of integrating our values with investments and our use of resources. They are quite sincere about helping companies and investment managers look across the full range of their impacts to improve risk management and productivity. They are looking to find common ground and support from those interested in providing resources, no matter the difference in goals. This group of professionals offers an opportunity to make ESG meaningful, particularly if they are willing to grapple with the negative returns of central control rather than help central control grow.
Global populations continue to grow. With globalization, the global middle class is growing, too. Consequently, pressure on resources and resource depletion continue. Climate change is being used as a way of marketing or requiring reduced individual resource use—at the very same time that many governments find themselves not in a position to deliver on their retirement and social safety net promises and facing concerns about increased costs of household goods resulting from aggressive monetary and fiscal policy. The climate change push includes an effort to use Agenda 21/30, financial and regulatory manipulation, and disaster capitalism to drive people from the countryside into high-density cities where they will be subject to much greater central dependency and control.
Understanding the basic facts of resources and resource use is essential for any ESG effort—including the statistics of people, resources, and unfunded liabilities—yet it is difficult and time-consuming to accomplish. One of the critical wildcards has to do with the possibility of breakthrough energy solutions over the next few decades.
We live on a planet where the real governance system is invisible. In the absence of reliable disclosure, my nickname for the governance system is "Mr. Global." The financial system is one of the primary tools used by Mr. Global to manage in an invisible manner. This includes the fiat currency and debt systems described above. Consequently, at the heart of this system is what some economists call "unsound money." My favorite comment on this aspect relative to ESG comes from Reg Howe's award-winning essay, "The Golden Sextant":
The invisibility of the governance system has been exacerbated by the rise of index funds. These funds have centralized a significant portion of capital into the hands of a small number of investment managers and stripped the financial market of what was once a large number of research analysts who kept a sharp eye on basic financial disclosure and policed bad behavior. The disappearance of this research capacity has contributed to the U.S. capital markets going "dark."
Again, for ESG to be meaningful, it needs to promote basic transparency regarding our governance and financial systems and must address the fundamental unsoundness of the current model. Layering on greater complexity without discussing or addressing these issues will likely foster a system that helps corporate monopolies further control resources.
VI. An Example—JPMorgan Chase & Co.
"To the victor go the spoils." ~English saying
The fact sheets for SRI and ESG mutual funds and exchange-traded funds (ETFs) typically list their top ten holdings. For many years, I have observed JPMorgan Chase & Co. (ticker = JPM) as a common holding in these top ten holding lists. I reviewed holdings for the top SRI and ESG funds for the 3rd Quarter 2016 Wrap Up and then again for this 1st Quarter 2019 Wrap Up. Although JPMorgan appears to have diminished in prominence, this could reflect financial and market conditions unrelated to ESG objectives. Overall, JPMorgan continues to have a significant presence in current SRI and ESG fund holdings.
I was inspired to consider JPMorgan for my lead example in this ESG discussion after hearing an impressive presentation by JUST Capital. JUST Capital polls U.S. citizens to determine the values important to them and then applies those values to ranking U.S. companies that are the most "just." In an online webinar, JUST Capital described JPMorgan's inclusion in its index used for the Goldman Sachs JUST Large Cap Equity ETF (ticker = JUST). JPM is currently the fourth largest holding.
In its 2019 Rankings, JUST Capital ranked JPMorgan as 111th of 890 companies and 3rd of 47 banks. JPMorgan won an overall score of 57.2 despite the fact that its ranking for customers ("fair treatment of customers, including privacy and honest sales terms") was 852 of 890 companies and despite a ranking of 853 of 890 companies for products ("products and services should be high quality, fairly priced, and beneficial to society"). (In JUST Capital's 2020 Rankings, released on November 12, 2019, the rankings changed slightly—but JPM was still 886 out of 922 companies for "how a company treats its customers.") See more at JUST Capital's website.
JPMorgan's financial shenanigans are well-documented, as is its association with U.S. banking industry activities destructive of economic productivity and supportive of centralizing wealth. If ESG can so easily and quickly redeem JPMorgan, then ESG has the potential to become the financial equivalent of the Men in Black's Neuralyzer.
Consequently, JPMorgan seems an ideal choice to demonstrate the incoherence in the current application of ESG criteria.
B. Overview of JPMorgan
JPMorgan is the largest U.S. bank in terms of both asset size ($2.7 trillion) and market capitalization ($400 billion). It is the sixth largest bank in the world in asset size—behind four larger Chinese banks and one larger Japanese bank—and the largest in the world by market capitalization. According to the Nilson Report, JPMorgan is the second largest U.S. credit card issuer, with purchases falling slightly behind American Express.
According to its most recent annual report, JPMorgan has annual net revenues of $109 billion, net income of $32.5 billion, a return on common equity of 13%, and 256,105 employees.
Its strategic position relative to government puts it at the very center of the financial train tracks of the global financial system.
The New York Fed, the most powerful of the 12 banks of the U.S. Federal Reserve System, is a private bank that serves as depository for the U.S. government. It provides the federal bank accounts and uses its members to do so. The New York Fed is owned by its members—of which JPMorgan is the largest and most powerful. When I contacted the New York Fed years ago to ask whether its members had access to its data flows and intelligence, it informed me that that information was confidential. As one retired Drug Enforcement Agency agent told a reporter I was working with, "All the wires are batched and run through the New York Fed. Let's face it, they know where every penny is."
The New York Fed serves as the agent to the U.S. government in management of the Exchange Stabilization Fund (ESF), reporting directly to the Secretary of the Treasury—again using its member banks for implementation of ESF operations. The New York Fed also implements domestic market operations reflecting the Fed's monetary policies. For an overview of the laws related to the creation and operation of the U.S. Federal Reserve, see the Special Solari Report "The History and Organization of the Federal Reserve: The What and Why of the United States' Most Powerful Banking Organization."
U.S. government operations are deeply dependent on JPMorgan, whether in the latter's role as a dominant party in the ownership and control of the New York Fed or as a dominant party in implementation of operations for the New York Fed's depository, ESF, and market operations. In my experience as Assistant Secretary of Housing, this reliance on JPMorgan led to the bank having many other responsibilities and contractual relationships with federal government agency financial operations, such as mortgage servicing at Ginnie Mae at HUD. For many years, JPMorgan Chase served as a leading foreclosure agent and manager for the FHA/HUD foreclosure and property management system. JPMorgan Chase—when last I looked—also ran the Food Stamp payment systems for 37 U.S. states, outsourcing its data servicing and customer service to India.
In addition, these relationships extended to significant banking, lending, and underwriting relationships with state and local government. One Houston attorney explained to me that all of the housing bonds they issued using HUD Section 8 subsidy were required to use JPMorgan as trustee.
JPMorgan's relationships also extend internationally, with significant correspondent banking relationships. According to its website, "In December 1947, at the invitation of U.S. military authorities, Chase Manhattan Bank established the first U.S. postwar bank branches in Frankfurt and Tokyo. They joined the London and Paris branches and were soon followed by others around the world. In the 1970s alone, Chase added nearly 40 international branches, representative offices, affiliates, subsidiaries and joint ventures. The bank executed two historic firsts in 1973: opening a representative office in Moscow, the first U.S. bank presence in Russia since the 1920s; and becoming the first U.S. correspondent to the Bank of China since the 1949 revolution."
A South African executive once explained to me that all funds in and out of the country had to go through JPMorgan as lead correspondent bank. I have not confirmed that statement but mention it as I was struck by his assumption that JPMorgan controlled the primary financial transaction train tracks in and out of the country. In essence, JPMorgan had a financial kill switch.
JPMorgan has played a significant role in the SWIFT payment networks and the design and management of significant payment networks globally. This means that it plays an important role in the implementation of U.S. Treasury economic sanctions—a critical strategy for U.S. geopolitical power and financial control globally.
Along with Citibank, JPMorgan has been the leader in developing the OTC derivative market, with total notational derivatives of $47 trillion at the end of 2016. I have long believed that a significant portion of this position was as agent for the ESF; hence, it is a position for which the U.S. Treasury is entirely liable. Given the role of derivatives in the management of the gold market and various commodities markets, and the role of interest rate swaps in management of interest rates, JPMorgan's role in market interventions is more than significant. There has been much criticism of JPMorgan's role in these interventions, including serious questions about legality, ethics, and the destructive consequences of market manipulation for productivity and various economies.
JPMorgan is a primary dealer—one of 24 firms that facilitates the marketing and distribution of U.S. government securities. I am sometimes asked by subscribers and clients why the government does not do a better job of regulating JPMorgan. My response is simple. It is extremely difficult to separate the New York Fed, the U.S. Treasury, and JPMorgan Chase. Their operations are highly integrated and deeply interdependent. The conflicts of interest are substantial in number and size. Imagine a regulator who is highly leveraged and deeply financially dependent on the entity it is regulating. That is going to be a very timid regulator.
JPMorgan is also a major asset manager. eVestment's global database at the end of 2018 listed J.P. Morgan Investment Management Inc. as the seventh largest, with nearly $1 trillion of assets under management. (BlackRock was the largest with $3.6 trillion, followed by second largest Vanguard with $3.1 trillion.)
For more information on JPMorgan, I recommend a review of their SEC filings available at the Investor Relations section on their website. Here is a direct link to their annual report and proxy statement.
C. JPMorgan: Questionable, Unethical, and Illegal Activities
Having chosen JPMorgan to demonstrate the challenges of applying ESG in the current environment, I assigned a researcher to spend several weeks making a table listing recent regulatory and litigation settlements with JPMorgan. From open sources, they were able to identify 69 settlements totaling approximately $42 billion (or approximately 130% of the bank's 2018 net income) from approximately 2002 to 2019 (with the majority subsequent to 2008). I would encourage you to review the table to get a sense of the magnitude of JPMorgan's questionable, unethical, and illegal activities during the period.
Table: JPMorgan Chase: Selected Legal, Regulatory, and Enforcement Settlements, 2002 to Date
|SUM PAID||PARTIES HARMED||DESCRIPTION|
(Adapted from jpmadoff.com website)
|Investors||2015/01/30||Foreign Exchange Benchmark Rates Antitrust Litigation, U.S. District Court, Southern District of New York, No. 13-07789||$99.5 million||Investors including hedge funds, pension funds, and the city of Philadelphia||JPMC agreed to pay $99.5 million in response to an antitrust lawsuit; investors alleged that 12 banks, including JPMC, rigged prices in the foreign exchange market (January 2015).||JPMorgan to pay $99.5 million to resolve currency rigging lawsuit||The lawsuit alleged collusion among the banks since early 2003. The 12 banks control 84% of the global currency trading market.|
|Investors||2015/07/17||Fort Worth Employees’ Retirement Fund and other investors (quoted from the articles) Fort Worth Employees’ Retirement Fund v. JPMorgan Chase & Co., 09-cv-3701, U.S. District Court, Southern District of New York (Manhattan)||$388 million||Pension funds||JPMC agreed to pay $388 million to settle claims by investors who alleged that JPMC misled them about the safety of $10 billion worth of residential mortgage-backed securities (July 17, 2015).||JPMorgan reaches $388 million accord in MBS investor suit|
|Money market funds||2010/07||State of Florida||$25 million||Local Government Investment Pool||JPMC paid $25 million to settle claims that it sold unregistered securities to a state-run municipal money-market fund that suffered a run on deposits because it held defaulted debt (December 2010).||JPMorgan agrees to pay Florida $25 million for securities sales|
|JPMorgan Chase force-placed insurance class action lawsuit||2013/12/19||Shelly Clements et al. v. JPMorgan Chase Bank NA et al., Case No. 3:12-cv-01279, in the U.S. District Court for the Northern District of California|
(multiple plaintiffs between NY and CA)
|$22 million||NY and CA homeowners||JPMC paid $22.1 million to settle several class action lawsuits that accused it of force-placing costly flood insurance on homeowners with mortgages serviced by the bank (December 2013).||JPMorgan to settle $22M force-placed insurance class action lawsuit|
|JPMorgan Chase force-placed insurance class action lawsuit||2013/10||Salvatore Saccoccio et al. v. JPMorgan Chase Bank NA et al., Case No. 1:13-cv-21107, in the U.S. District Court for the Southern District of Florida||A federal judge granted final approval to the $300 million JPMorgan Chase Force-Placed Insurance Class Action Settlement on Feb. 28, 2014.||FL homeowners||A federal judge in Florida approved a $300 million class action lawsuit settlement resolving claims that JPMC and Assurant Inc. overcharged homeowners for force-placed hazard insurance due to lender-insurer kickbacks (October 2013); the final hearing was on February 14, 2014.||Judge approves $300M Chase force-placed insurance class action settlement|
|Great Britain regulators||2010/06/03||Financial regulator in Britain||$48.6 million||British lenders||JPMC paid $48.6 million to settle claims by Great Britain’s financial regulator that JPMC’s London unit failed to maintain required separation between customers’ funds and JPMC funds (June 2010).||JPMorgan penalized by regulator in Britain||JPMorgan failed to separate client funds worth $1.9 billion to $23 billion from 2002 until July 2009. The regulator stated that the fine was meant to “send out a strong message to firms of all sizes that they must ensure client money is segregated,” with “several more cases in the pipeline.”|
|JPMorgan Chase customers||2012/04||U.S. Commodity Futures Trading Commission (CFTC)||$20 million||Lehman Brothers Inc. customers||JPMC paid $20 million to settle claims by the CFTC that the bank improperly extended credit to Lehman Brothers based, in part, on commingled customer funds that it was required to keep separate (April 2012).||CFTC orders JPMorgan Chase Bank, N.A. to pay a $20 million civil monetary penalty to settle CFTC charges of unlawfully handling customer segregated funds||“...LBI deposited its customers’ segregated funds with JPMorgan in large amounts that varied in size, but almost always more than $250 million at any one time. According to the order, during the same time period, JPMorgan extended intra-day credit to LBI on a daily basis to facilitate LBI’s proprietary transactions, including repurchase agreements, or ‘repos.’ JPMorgan would extend intra-day credit to LBI to the extent that LBI’s ‘net free equity’ at JPMorgan was positive. As of November 17, 2006, JPMorgan included LBI’s customer segregated funds in its calculation of LBI’s net free equity, even though these funds belonged to LBI’s customers, not to LBI....”|
|Mortgage investors||2012/11||Securities and Exchange Commission (SEC)||$296.9 million||Mortgage investors/RMBS Working Group||JPMC paid $296.9 million to the SEC to settle claims that the bank misstated information about the delinquency status of mortgages that served as collateral for securities offerings underwritten by the bank. JPMC received fees of over $2.7 million, while investors suffered losses of at least $37 million on undisclosed delinquent loans (November 2012).||SEC charges J.P. Morgan and Credit Suisse with misleading investors in RMBS offerings||“The SEC alleges that J.P. Morgan misstated information about the delinquency status of mortgage loans that provided collateral for an RMBS offering in which it was the underwriter. ...J.P. Morgan also is charged for Bear Stearns' failure to disclose its practice of obtaining and keeping cash settlements from mortgage loan originators on problem loans that Bear Stearns had sold into RMBS trusts. The proceeds from this bulk settlement practice were at least $137.8 million.”|
|Mortgage-backed securities investors||2013/11||Department of Justice (DOJ)/Residential Mortgage-Backed Securities (RMBS) Working Group||$13 billion||Mortgage-backed securities investors across the U.S.||The DOJ announced (November 19, 2013) a $13 billion settlement with JPMC to resolve “federal and state civil claims arising out of the packaging, marketing, sale and issuance of residential mortgage-backed securities (RMBS) by JPMorgan, Bear Stearns and Washington Mutual prior to Jan. 1, 2009.” JPMC agreed to pay the $13 billion in exchange for complete civil immunity. The DOJ did not disclose the identity of a single JPMC executive or employee responsible for the bank’s actions and did not require that JPMC take any remedial measures to prevent similar misconduct in the future.||Justice Department, federal and state partners secure record $13 billion global settlement with JPMorgan for misleading investors about securities containing toxic mortgages||$2 billion as a civil penalty under the Financial Institutions Reform, Recovery, and Enforcement Act|
$1.4 billion to settle claims by the National Credit Union Administration
$515.4 million to settle claims by the Federal Deposit Insurance Corporation
$4 billion to settle claims by the Federal Housing Finance Agency
$298.9 million to settle claims by the State of California
$19.7 million to settle claims by the State of Delaware
$100 million to settle claims by the State of Illinois
$34.4 million to settle claims by the Commonwealth of Massachusetts
$613 million to settle claims by the State of New York
$4 billion in relief to aid consumers harmed by the unlawful conduct of JPMorgan, Bear Stearns, and Washington Mutual
|Fannie Mae/Freddie Mac||2013/10/13||Federal Housing Finance Agency (FHFA)||$1.1 billion and $4 billion paid||Fannie Mae and Freddie Mac||JPMC agreed to resolve, for $1.1 billion, litigation with Fannie Mae and Freddie Mac concerning mortgage repurchase obligations and also resolved mortage-backed securities litigation for $4 billion (October 25, 2013).||JPMorgan Chase pays $5.1 billion to settle mortgage-backed securities cases||JPMC agreed “to resolve all of its mortgage-backed securities (MBS) litigation with the Federal Housing Finance Agency (FHFA) as conservator for Freddie Mac and Fannie Mae for $4 billion.” The settlement, which resolved JPMC’s largest MBS case, related to about $33.8 billion of securities purchased by Fannie Mae and Freddie Mac from JPMC, Bear Stearns, and Washington Mutual. JPMC also agreed “to resolve Fannie Mae's and Freddie Mac's repurchase claims associated with whole loan purchases from 2000 to 2008, for $1.1 billion.”|
|Lehmann Brothers||2016/01/25||Lehman Brothers||$1.42 billion||Lehman’s creditors||JPMC settled two outstanding disputes with Lehman Brothers Holdings Inc. and certain Lehman affiliates in which Lehman alleged, inter alia, that JPMC had coerced several billion dollars from Lehman on the eve of its bankruptcy in September 2008, draining Lehman of virtually all liquidity and leading to a bank run that ultimately led to the bankruptcy (January 25, 2016).||J.P. Morgan to pay $1.42 billion to settle some Lehman claims||Court papers showed that the accord “would permit a further $1.496 billion to be distributed to the creditors, including a separate $76 million deposit.” Lehman noted over $105 billion already paid to Lehman’s unsecured creditors.|
|Pension funds||2012/03||AFTRA Pension Fund Board of Trustees of the AFTRA Retirement Fund et al. v. JPMorgan Chase Bank NA, U.S. District Court, Southern District of New York, No. 09-00686||$150 million||AFTRA members, Manhattan and Bronx Surface Transit Operating Authority Pension Fund in New York, and the Imperial County Employees' Retirement System in El Centro, CA||JPMC paid $150 million to settle claims that it “imprudently” invested pension funds in a risky debt vehicle (March 2012).||JPMorgan to pay $150 million over failed Sigma SIV|
|Shareholders||2016/01/16||JPMorgan Chase & Co. Securities Litigation, U.S. District Court, Southern District of New York, No. 12-03852||$150 million||Pension funds in the U.S. states of Arkansas, Ohio, and Oregon and in Sweden||A federal judge preliminarily approved a class action settlement on behalf of JPMC shareholders who alleged suffering losses as a result of the bank’s supplying false and misleading statements concerning the risks and losses arising from the secret proprietary trading activities of the “London Whale,” a rogue London-based JPMC trader who caused the bank to suffer $6.2 billion in losses (January 19, 2016).||JPMorgan to pay $150 million in "London Whale" U.S. class action||Prior to the settlement, the U.S. Federal Reserve’s Inspector General issued a report saying regulators had bungled oversight of the JPMorgan unit where the losses took place. The report said examiners in New York spotted risks as early as 2008 but never followed up, prompting criticism that megabanks are too big to manage and regulate.|
|Workers||2015/04/02||Loeza et al. v. JPMorgan Chase Bank NA et al., case number 3:13-cv-00095, in the U.S. District Court for the Southern District of California||$950,000||JPMorgan Chase employees||JPMC agreed to settle claims that it failed to pay overtime and provide proper breaks to a California class of underwriters, reaching a $950,000 settlement (April 2, 2015).||$950K settlement reached in JP Morgan Chase bank unpaid overtime class action lawsuit|
|Consumers||2014/04/23||Consumers||$5.5 million||438,000 Circuit City rewards credit card holders||JPMC agreed to pay $5.5 million to settle claims made by a class of nearly 480,000 Circuit City rewards credit card holders who alleged JPMC duped them into joining an “interest free” program, then breached their contract by charging class members unexpected fees and interest (April 23, 2014).||Chase to pay $5.5M to Circuit City credit card fee class|
|Libor victims||2013/12||European Union||€79.9 million||JPMC reached a settlement with the European Commission regarding its Japanese Yen Libor investigation concerning antitrust rigging of benchmark interest rates, agreeing to pay a fine of €79.9 (December 2013).||EU fines banks record $2.3B over Libor||Fannie Mae filed a lawsuit in October 2013 against nine banks, including JPMC, arguing Fannie Mae lost money on mortgages and interest rate swaps when the banks set Libor rates artificially low. U.S. law firms also led civil actions on behalf of investors claiming losses due to the market manipulation.|
|Checking accounts||2012/02||Checking Account Overdraft Litigation, U.S. District Court, Southern District of Florida, No. 09-md-02036||$110 million||JPMorgan Chase customers||JPMC agreed to pay $110 million to settle claims that it overcharged customers for overdraft fees (February 2012).||JPMorgan settles overdraft fee case for $110 mln|
|Consumers of electricity||2013/07||Federal Energy Regulatory Commission (FERC)||$410 million||California Independent System Operator (California ISO) and Midcontinent Independent System Operator (MISO)||JPMC paid $410 million to FERC to settle claims of bidding manipulation of California and Midwest electricity markets (July 2013).||JPMorgan agrees to pay $410 million to settle electricity market probe||FERC investigators determined that JPMVEC engaged in 12 manipulative bidding strategies designed to make profits from power plants that were usually out of the money in the marketplace. In each of them, the company made bids designed to create artificial conditions that forced the ISOs to pay JPMVEC outside the market at premium rates.|
|Veterans||2012/03||DOJ||$659 million||Veterans||JPMC paid the federal government a $45 million fine to settle claims that it charged veterans hidden fees in mortgage refinancing transactions (March 2012).|
Two years later (February 2014), JPMC agreed to pay $614 million to settle charges asserted by the U.S. Attorney’s Office for the Southern District of New York, the Federal Housing Administration (FHA), and the Departments of Housing and Urban Development (HUD) and Veterans Affairs (VA) resolving False Claims Act, FIRREA and other civil and administrative liability for FHA and VA insurance claims paid to JPMC from 2002 through the date of settlement.
|JPMorgan paying $45 million to settle mortgage suit JPMorgan Chase to pay $614 million for submitting false claims for FHA-insured and VA-guaranteed mortgage loans|
|Collateralized debt||2011/06||SEC||$153.6 million||Investors||JPMC paid a penalty to the SEC of $153.6 million to settle charges that it failed to disclose material information to investors in collateralized debt obligations (CDOs) (June 2011).||J.P. Morgan to pay $153.6 million to settle SEC charges of misleading investors in CDO tied to U.S. housing market||According to the SEC allegations, JPMC knew in March/April 2007 that it faced growing financial losses from the CDO deal. “The firm then launched a frantic global sales effort...that went beyond its traditional customer base for mortgage securities.” The SEC press release cited cited the JPMorgan employee in charge of the CDO deal’s global distribution as stating on March 22, 2007, “we are soooo pregnant with this deal, we need a wheel-barrel to move around. … Let's schedule the cesarian (sic), please!” The securities lost most or all of their value within 10 months.|
|Municipal bond buyers||2011/07||SEC||$228 million||Investors||JPMC paid the SEC $228 million to settle charges that it fraudulently rigged at least 93 municipal bond transactions in 31 states, generating millions of dollars in profits (July 2011).||SEC charges J. P. Morgan securities with fraudulent bidding practices involving investment of municipal bond proceeds||This was the SEC’s third settlement with a financial institution stemming from investigation of corruption in the municipal reinvestment industry. The SEC charged Banc of America Securities (BAS) with securities fraud for similar conduct in December 2010. BAS paid over $36 million to settle the SEC’s charges, and an additional $101 million to other federal and state authorities. In May, 2011, the SEC also charged UBS Financial Services (UBS) with securities fraud for rigging bids. UBS paid $47.2 million to settle the charges as well as $113 million to other federal and state authorities.|
|The American people||2011/08||Department of Treasury||$88.3 million||JPMC paid the Treasury Department $88.3 million to settle claims that it improperly processed transactions in violation of sanctions laws against Cuba, Iran, and Sudan (August 2011).||JPMorgan Chase Bank N.A. settles apparent violations of multiple sanctions programs||The Treasury Department’s Office of Foreign Assets Control (OFAC) determined that the violations “were egregious because of reckless acts or omissions by JPMC.” OFAC determined that “JPMC is a very large, commercially sophisticated financial institution, and that JPMC managers and supervisors acted with knowledge of the conduct constituting the apparent violations and recklessly failed to exercise a minimal degree of caution or care with respect to JPMC's U.S. sanctions obligations.”|
|Madoff victims||2014/01||Department of Treasury, Office of the Comptroller of the Currency (OOC), Madoff victims, and trustees||$3.054 billion||Madoff victims||JPMC agreed to forfeit to the federal government $1.7 billion (non-tax-deductible payment) as part of a deferred prosecution agreement relating to its failure to comply with the requirements of the Bank Secrecy Act (BSA) with respect to Madoff’s brokerage account (January 2014). JPMC also paid a $350 million civil money penalty to OCC in connection with its BSA violations, a $461 million civil money penalty to the Financial Crimes Enforcement Network (FinCEN) for failure to detect and adequately report suspicious transactions conducted by Madoff, $218 million to settle a class action lawsuit brought by Madoff victims, and $325 million to settle claims brought by the Securities Investor Protection Act (SIPA) Trustee on behalf of Madoff victims.||OCC assesses a $350 million civil money penalty against JPMorgan Chase for Bank Secrecy Act violations |
JPMorgan admits violation of the Bank Secrecy Act for failed Madoff oversight; fined $461 million by FinCEN
U.S. judge OKs JPMorgan $218 million Madoff class-action settlement
SIPA Trustee announces settlement agreements reached with JPMorgan Chase in Madoff fraud
|Out of the $3 billion paid, actual victims only received $218 million.|
|Armed Services members||2011/04||Rowles v. Chase Home Finance LLC, 10-1756-MBS, U.S. District Court, District of South Carolina (Beaufort Division)||$35 million||Armed Services members||JPMC agreed to pay a total of $60.4 million to settle claims that the bank overcharged active or recently active military service members on their mortgages (April 2011). Payments included $27 million in cash to approximately 6,000 military personnel and $33.4 in various other payments; JPMC also agreed to lower interest rates and fees in excess of that permitted by the Servicemembers Civil Relief Act (SCRA) and the 2008 Housing and Economic Recovery Act (HERA) on soldiers’ home loans and to return improperly foreclosed homes owned by borrowers protected by SCRA and HERA. Later, additional borrowers were added to the class, and JPMC agreed to pay an additional $8 million into the settlement fund.||JPMorgan Chase settles military mortgage class action lawsuit|
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, for the fiscal year ended December 31, 2011
|Under the terms of the settlement, JPMC agreed to pay $12 million to plaintiffs, $6.4 million to military personnel wrongfully foreclosed on, $27 million to 6,000 active-duty military personnel overcharged on their mortgages, and $15 million for additional damages determined on a case-by-case basis.|
|Peregrine||2014/03/27||Peregrine||$15 million||Customers||JPMC and the bankruptcy trustee for Peregrine Financial Group, Inc. agreed to a $15 million settlement of claims alleging JPMC allowed fraud to occur at Peregrine, which was bankrupted after its founder looted hundreds of millions of dollars from customer accounts (March 2014).||Peregrine bankruptcy trustee, JPMorgan ink $15M settlement|
|Workers||2014/10/10||Commercial real estate appraisers||$2.4 million||JPMorgan Chase employees||JPMC agreed to pay $2.4 million to resolve claims that it illegally misclassified commercial real estate appraisers as exempt workers to avoid paying them overtime (October 2014).||JPMorgan agrees to $2.4M deal in appraisers' wage suit||Each of 158 employees received approximately $9,500, and the company pledged to reclassify certain appraisers as non-exempt from overtime.|
|Workers||2014/10/08||JPMorgan Chase Fair Labor Standards Act Violation Class Action Lawsuit – Evan Hightower et al. v. JPMorgan Chase Bank, Case No. 11-CV-01802, in the U.S. District Court for the Central District of California.||$12 million||JPMorgan Chase employees||JPMC agreed to pay up to $12 million to settle claims that certain of its tellers and other bank employees (approximately 145,000 employees in 12 states) were not paid proper wages or overtime because JPMC did not count some hours worked (October 2014).||JP Morgan reaches $12M wage and hour class action settlement||JPMC used an accounting system “that converted worked minutes into fractions of an hour, and then converted that fraction into decimals, which translated to employees not being paid for all the time they worked, according to the unpaid overtime class action lawsuit.”|
|Homeowners||2014/07/15||New Jersey homeowners||$2.225 million||NJ homeowners||A New Jersey federal judge approved a $2.25 million settlement between JPMC and a class of consumers who alleged that JPMC charged them late fees on their mortgage payments even when they were on time (July 2014).||$2M deal OK’d between JPMorgan unit and NJ borrowers|
|Workers||2014/03/25||Kevin Royer et al. v. JPMorgan Chase & Co. et al., Case No. 1:11-cv-08205, in the U.S. District Court for the Southern District of New York||$16 million||NY and NJ JPMorgan Chase employees||JPMC agreed to pay $16M to settle a class action alleging that it failed to pay overtime to its business bankers (April 2014).||JPMorgan bankers reach $16M overtime class action settlement|
|General public||2014/11||U.S. and UK regulators||$996 million||General public||JPMC agreed to pay nearly $1 billion to U.S. and U.K. regulators who alleged that JPMC and other banks manipulated the $5.3-trillion-a-day currency market (November 2014).||Citigroup, JPMorgan pay most in $4.3 billion FX rig cases||JPMC paid $6 million less than Citigroup’s payment of $1.02 billion to three regulators in the U.S. and UK. In all, six firms (JPMC, Citigroup, and four others) paid $4.3 billion to four regulators in the U.S., UK, and Switzerland.|
|Credit card holders||2012/10||$1.2 billion||JPMorgan Chase customers||JPMC paid $1.2 billion (20% of a global $6.05 billion settlement) to settle claims that it, along with other banks, conspired to set the price of credit and debit card interchange fees (2012).||Major JPMorgan Chase settlements and fines|
|Homeowners||2013/01/07||OCC||$1.96 billion||Borrowers||JPMC and a number of other financial institutions entered into a settlement agreement with the OCC and the Federal Reserve Bank providing for the termination of the Independent Foreclosure Review programs that had been required under the Consent Orders with such banking regulators relating to each bank’s residential mortgage servicing, foreclosure, and loss-mitigation activities. Under the settlement, JPMC agreed to make a cash payment of $760 million into a settlement fund for distribution to qualified borrowers. It also committed an additional $1.2 billion to foreclosure prevention actions, to be fulfilled through credits given to JPMC for modifications, short sales, and other types of borrower relief.||Amendment to April 13, 2011 Consent Order|
|Consumers||2013/09||OCC||$389 million||JPMorgan Chase customers||JPMC agreed to pay $80 million in fines and $309 million in refunds to consumers who were billed for credit monitoring services that the bank never provided (September 2013).||JPMorgan ordered to refund $309 million over "unfair" credit card billing||The order to pay a fine and to refund customers came on the same day that U.S. and U.K. officials announced $920 million in fines to be paid by JPMC over its "London Whale" trading debacle.|
|Homeowners||2015/11/02||CA Attorney General||$100 million||JPMorgan Chase customers||JPMC agreed to pay $100 million in restitution and penalties to settle a lawsuit by the California Attorney General against JPMC over the bank’s consumer credit card debt collection practices, including allegations it was robosigning thousands of documents (November 2015).||Attorney General Kamala D. Harris announces settlement with JPMorgan Chase for unlawful debt-collection practices||According to the Attorney General’s press release, “Between 2009 and 2013, Chase filed more than 125,000 credit card collection lawsuits against California consumers relying on illegally robo-signed sworn documents and provided an additional 30,000 robo-signed sworn statements in support of lawsuits filed against California consumers by third-party debt-collectors. Chase also made systematic calculation errors regarding the amounts owed, and sold ‘zombie debts’ to third-party debt-collectors that included accounts that were inaccurate, settled, discharged in bankruptcy, not owed, or otherwise not collectable.”|
|Consumers||2015/10||State of Illinois||$10.2 million||Mobile customers||An Illinois federal judge approved a $10.2 million settlement for a nationwide class of persons who were “robodialed” by JPMC in violation of the Telephone Consumer Protection Act (October 2015).||JPMorgan gets $10.2M robocall deal OK'd over objections|
|Investors||2015/12/15||Hong Kong regulators||$3.87 million||Hong Kong regulators announced that they had fined JPMC $3.87 million for various regulatory failures relating to internal controls on short-selling, dark pool trading, and other types of trading (December 2015).||Hong Kong watchdog fines JPMorgan for dark pool, control failures|
|Clients||2016/01/06||SEC||$4 million||JPMorgan Chase clients||JPMC’s brokerage business agreed to settle charges with the SEC that it misled clients and made false statements about how its brokers were compensated (January 2016).||SEC: J.P. Morgan misled customers on broker compensation|
|General public||2015/10/29||In re: Credit Default Swaps Antitrust Litigation, 13-md-02476, U.S. District Court, Southern District of New York (Manhattan)||$595 million||Investors||A federal judge approved settlement of multidistrict litigation alleging that JPMC and eleven other market participants rigged the credit-default swaps (CDS) market, with JPMC paying the largest portion ($595M) of the settlement (October 2015).||JPMorgan said to pay most in $1.86 billion CDS settlement|
|Clients||2015/12/18||SEC||$307 million||Mutual fund investors||JPMC agreed to pay $307M to settle claims with the SEC and the CFTC for failing to disclose conflicts of interest while steering clients into its own hedge funds and mutual funds (December 2015).||JPMorgan to pay $307 million for steering clients to own funds|
|Homeowners||2016/01/04||OCC||$48 million||Lenders||JPMC agreed to pay a $48 million fine for its violations of a 2011 consent order with the OCC arising from its “robosigning” of loan documents and other unsafe and unsound banking practices (January 2015).||OCC lifts mortgage servicing restrictions on Wells|
|General public||2014/07/29||Commodity Futures Trading Commission (CFTC)||$650,000||JPMC agreed to settle charges brought against it by the CFTC for filing inaccurate reports to the agency from 2012 and for continuing even after the charges were brought (July 2014).||CFTC fines JPMorgan $650,000 for inaccurate reporting|
|Mortgage-backed securities investors||2014/05/02||Plumbers' & Pipefitters' Local #562 Supplemental Plan & Trust v. JPMorgan Acceptance Corporation I, et al., U.S. District Court, Eastern District of New York, No. 08-01713 (reporting by Nate Raymond in New York; editing by Leslie Adler)||$280 million||Pension funds||The U.S. District Court for the Eastern District of New York granted final approval (July 2014) for a settlement of $280 million to resolve claims brought against JPMC by the Plumbers’ & Pipefitters’ Local # 562 Supplemental Plan & Trust that JPMC misled investors in billions of dollars’ worth of mortgage-backed securities.||JPMorgan $280 mln mortgage accord gets preliminary court approval|
|Municipal bond investors||2012/12||United States District Court for the Southern District of New York||$43 million||Investors||The U.S. District Court for the Southern District of New York granted final approval of a $43 million settlement of individual actions against JPMorgan Chase and Bear Stearns, as well as numerous other providers and brokers, alleging antitrust violations in the market for financial instruments related to municipal bond offerings.||JP Morgan Chase & Co. Annual Report 2012 (p. 323)|
|JPMorgan Chase shareholders||2013/09||CFTC and SEC||$1.02 billion||Investors||JPMC paid $920 million in fines to the SEC, Federal Reserve Bank, OCC, and the UK’s Financial Conduct Authority to settle claims of mismanagement with respect to its oversight of traders involved in the “London Whale” disaster that caused losses of approximately $6 billion (September 2013). In addition, JPMC paid a $100 million fine to the CFTC and admitted to reckless conduct and market manipulation (October 2013).||JP Morgan Chase agrees to pay $200 million and admits wrongdoing to settle SEC charges: firm must pay $920 million in total penalties in global settlement|
JPMorgan to pay $100 million fine on CFTC London Whale claim
|Mortgage-backed securities investors||2013/11/15||21 institutional investors||$4.5 billion||Investors||JPMC announced a $4.5 billion agreement with 21 major institutional investors to make a binding offer to the trustees of 330 residential mortgage-backed securities trusts issued by JPMorgan, Chase, and Bear Stearns to resolve all claims on trusts issued between 2005 and 2008 (August 2014).||JPMorgan reaches proposed $4.5 billion mortgage securities deal for most trusts|
|Minority mortgage customers||2017/24/01||JPMorgan Chase Mortgage Discrimination Lawsuit – U.S. v. JPMorgan Chase Bank NA, Case No. 1:17-cv-00347, in the U.S. District Court for the Southern District of New York||$55 million||African American and Latino mortgage borrowers||JPMC announced a $55 million settlement for alleged mortgage discrimination, admitting that its wholesale lending brokers “charged minority borrowers more than white borrowers in the same position” (January 2017). The U.S. attorney for the Southern District of New York stated, “Such unequal treatment is not only unfair, but a violation of the Fair Housing Act.”||JPMorgan Chase settles mortgage discrimination lawsuit for $55M||The government alleged that JPMC gave its independent mortgage brokers the discretion to adjust pricing based on factors not related to borrower risk without documentation or justification. The lawsuit also accused JPMC of rewarding brokers with bonuses for charging interest rates above those based on standard credit criteria.|
|JPMorgan Chase customer privacy||2017||Michelle James et al. v. JPMorgan Chase Bank NA, Case No. 8:15-cv-02424, in the U.S. District Court for the Middle District of Florida, Tampa Division||$3.75 million||JPMorgan Chase customers||JPMC agreed to pay $3.75 million to settle a lawsuit claiming the bank violated the Telephone Consumer Protection Act (TCPA) by placing autodialed calls to cell phone numbers that were reassigned from JPMC customers to new cell phone subscribers, thus making calls without the recipients’ prior express consent (January 2017).||JPMorgan Chase Bank TCPA class action settlement|
|JPMorgan Chase employees||2019/05/21||In re: JPMorgan Stable Value Fund ERISA Litigation, Case No. 1:12-cv-02548-VSB, in the U.S. District Court for the Southern District of New York||$75 million||Employee 401(k) investments||JPMC reached a $75 million settlement to resolve claims that it mismanaged employee 401(k) investments (May 2019).||JPMorgan 401(k) retirement savings plan class action settlement||The class action lawsuit claimed that JPMC mismanaged employee retirement plans in violation of the Employee Retirement Income Security Act (ERISA). According to news reports, JPMC “reportedly invested its stable value funds into two of its other funds: the Intermediate Bond Fund and the Intermediate Public Bond Fund.”|
|Euribor rate manipulation||2018/11/18||Sullivan et al. v. Barclays Plc et al., U.S. District Court, Southern District of New York, No. 13-02811||$182.5 million||Pension funds||JPMC agreed to pay $182.5 million to settle U.S. investor litigation claiming JPMC violated antitrust law by conspiring with other banks to rig a key European interest rate benchmark (November 2018).||Citigroup, JPMorgan to pay $182.5 million to settle rate-rigging lawsuit||Euribor is the euro-denominated equivalent of Libor, used as a benchmark to set rates on hundreds of trillions of dollars of credit cards, student loans, mortgages, and other debt.|
|Metals traders||2018/11/12||Metals traders||Metals buyers||In October 2018, a JPMC precious metals trader pleaded guilty to fraudulent and deceptive trading activity, and in November, at least six lawsuits were filed in New York federal court on behalf of individuals trading in the precious metals market, who accused JPMC of longstanding precious metals market manipulation.||Former precious metals trader pleads guilty to commodities fraud and spoofing conspiracy|
JP Morgan faces potential class action lawsuit after guilty pleas by a former metals trader
|JPMorgan Chase customers||2018/11/29||All JPMorgan Chase customers’ private information||JPMC customers filed a class action lawsuit claiming that JPMC and Bank of America sold customers’ personal information (November 2018). JPMC previously paid out $100 million for a similar class action lawsuit settlement.||Class action lawsuit claims Bank of America and JPMorgan Chase sold personal consumer info|
|Referral hires||2016/11/17||SEC||$264 million||JPMC paid a settlement of $264 million in response to charges of nepotism (November 2016). The bank “caught the ire of regulators for allegedly hiring and giving internships to candidates based on requests from foreign governments, officials, and clients,” a breach of federal law.||JPMorgan Chase to pay $264 million to settle corruption charges||The settlement included $130 million to settle the SEC corruption charges, $72 million to the Justice Department, and $61.9 million to the Federal Reserve Board of Governors. |
|Mishandling ADRs||2018/12/26||SEC||$135 million||Foreign investors||The SEC ordered JPMC to pay roughly $135 million after finding that JPMC improperly provided American Depositary Receipts (ADRs) to brokers in thousands of pre-release transactions (even though the broker and customers did not have the foreign shares needed to support the ADRs) (December 2018). The result was an “inflating [of] the total number of a foreign issuer’s tradeable securities,” leading to “abusive practices” such as inappropriate short selling and dividend arbitrage.||JPMorgan to pay more than $135 million for improper handling of ADRs||According to the SEC press release, without admitting or denying the SEC’s findings, JPMC “agreed to pay disgorgement of more than $71 million in ill-gotten gains plus $14.4 million in prejudgment interest and a $49.7 million penalty for total monetary relief of more than $135 million.” In addition, the SEC’s order acknowledged JPMC’s “cooperation in the investigation and remedial acts.”|
|Interest rate benchmark manipulation||2018/06/18||CFTC||$65 million||Commodities investors and traders||The CFTC settled charges against JPMC for attempted manipulation of the ISDAFIX benchmark, requiring JPMC to pay a $65 million civil monetary penalty (June 2018).||CFTC orders JPMorgan Chase Bank, N.A. to pay $65 million penalty for attempted manipulation of U.S. Dollar ISDAFIX benchmark swap rates|
|Bankruptcy professional violation||2015/03/03||SEC||$50 million||Mortgage borrowers||The DOJ’s U.S. Trustee Program reached a national settlement agreement with JPMC, involving payment of more than $50 million (cash payments, mortgage loan credits, and loan forgiveness) to over 25,000 homeowners in bankruptcy (March 2015).||U.S. Trustee Program Reaches $50 Million Settlement with JPMorgan Chase to Protect Homeowners in Bankruptcy||In the settlement, JPMC acknowledged filing in bankruptcy courts more than 50,000 improperly signed (under penalty of perjury) payment change notices. At least 25,000 notices were signed in the names of former or current employees “who had nothing to do with reviewing the accuracy of the filings.” The other notices “were signed by individuals employed by a third party vendor on matters unrelated to checking the accuracy of the filings.”|
|Kickbacks and bribery||2016||SEC||$72 million||JPMorgan Securities (Asia Pacific) (JPMorgan APAC), a Hong Kong-based subsidiary, agreed to pay a penalty of $72 million for allegedly seeking to win banking deals by awarding high-level jobs to friends and relatives of Chinese government officials (November 2016).||JPMorgan’s investment bank in Hong Kong agrees to pay $72 million penalty for corrupt hiring scheme in China||According to the DOJ press release, “these quid pro quo arrangements were discussed internally among JPMorgan APAC bankers. For example, in late 2009, a Chinese government official communicated to a senior JPMorgan APAC banker that hiring a referred candidate would significantly influence the role JPMorgan APAC would receive in an upcoming initial public offering (IPO) for a Chinese state-owned company. The banker communicated this message to several senior colleagues, who then spent several months trying to place the referred candidate in an investment banking position in New York. Despite learning from personnel in New York that this referred candidate was not qualified for an investment banking position, senior JPMorgan APAC bankers created a new position for the candidate in New York, and JPMorgan APAC thereafter obtained a leading role in the IPO. Further, JPMorgan APAC employees misused compliance questionnaires to justify and paper over corrupt business arrangements. Employees also used a template with pre-filled answers, including that there was ‘no expected benefit’ from the hire, and compliance personnel drafted and modified questionnaires that failed to state the true purpose of the hire.”|
|Banking violation||2016/11/16||Federal Reserve||$61.9 million||The Federal Reserve Board ordered JPMC to pay $61.9 million in civil money penalties for “unsafe and unsound practices related to the firm's practice of hiring individuals referred by foreign officials and other clients in order to obtain improper business advantages for the firm.”||Federal Reserve Board orders JPMorgan Chase & Co. to pay $61.9 million civil money penalty|
|Inaccurate consumer information||2017/08/03||Consumer Financial Protection Bureau (CFPB)||$4.6 million||JPMorgan Chase customers||JPMC was fined $4.6 million (August 2017) after a consumer agency alleged that the bank “did not have proper procedures in place to guarantee the accuracy of checking account screening reports, which constitutes a violation of the Fair Credit Reporting Act.” Consumers were allegedly “unable to open accounts and denied information about why they were rejected.”||JPMorgan Chase fined $4.6 million for not guaranteeing accuracy of consumer information||The Consumer Financial Protection Bureau director stated, “Information about checking account behavior is used to determine who can open a bank account.” JPMC “did not have the required processes to report this information accurately, and kept consumers in the dark about reporting disputes and application denials.”|
|Economic sanction violation||2018||U.S. Treasury Department Office of Foreign Assets Control (OFAC)||$5.3 million||The U.S. Treasury’s Office of Foreign Assets Control (OFAC) fined JPMC $5.3 million in October 2018 to settle JPMC’s civil liability for 87 violations pertaining to one or more sanctions programs administered by OFAC: the Cuban Assets Control Regulations; the Iranian Transactions and Sanctions Regulations; the Weapons of Mass Destruction Proliferators Sanctions Regulations; as well as violations of sanctions on narcotics and Syria.||Civil penalties against JP Morgan Chase for sanctions violations |
JPMorgan record not so clean with money laundering, manipulation
|Civil money penalties||2016/01/15||OCC||$48 million||Mortgage owners||The OCC assessed a $48 million civil money penalty against JPMC after determining that JPMC violated a 2011 consent order (October 2014 through June 2015) and (between December 2011 and mid-November 2013) “engaged in filing practices in bankruptcy courts with respect to payment change notices that did not comply with bankruptcy rules and constituted unsafe or unsound banking practices” (January 2016).||OCC terminates mortgage servicing-related consent orders against JPMorgan Chase and EverBank, issues civil money penalties|
|Overtime lawsuit||2018/02/05||JPMorgan Chase employees||$8.3 million||JPMorgan Chase employees||JPMC agreed to pay an $8.3 million settlement in response to a lawsuit claiming that a class of JPMC assistant bank managers in California were due overtime payments (February 2018).||$8.3M JPMorgan Chase overtime lawsuit settlement reached in California|
|Conflicts of interest on investment research||2002/12||Regulators, led by New York state Attorney General Eliot Spitzer||$80 million||Investors||In December 2002, JPMC paid fines totaling $80 million split across states and the federal government as part of a settlement involving charges that ten banks, including JPMC, deceived investors with biased research. The total settlement was $1.4 billion and required that the banks separate investment banking from research, and ban any allocation of IPO shares.||Wall Street firms to pay $1.4 billion|
|Enron scandal||2003/07/28||SEC||$135 million||Investors||The SEC charged JPMC with aiding and abetting Enron's securities fraud, alleging that JPMC “aided and abetted Enron's manipulation of its reported financial results through a series of complex structured finance transactions, called ‘prepays,’ over a period of several years preceding Enron's bankruptcy.” Enron used the transactions to report loans from JPMC as cash from operating activities. “The structural complexity of these transactions had no business purpose aside from masking the fact that, in substance, they were loans” from JPMC to Enron. Between December 1997 and September 2001, JPMC effectively loaned Enron approximately $2.6 billion via seven such transactions.||SEC charges J.P. Morgan Chase in connection with Enron's accounting fraud|
|Enron scandal||2005/06/15||Regulators and plaintiff lawyers||$2.2 billion||Investors||JPMC agreed to pay $2.2 billion to settle a class action lawsuit alleging that JPMC helped Enron report misleading financial results (June 2005).||Settlement in Enron lawsuit for Chase|
|WorldCom||2005/05||Comptroller of New York||$2 billion||Bond investors||JPMC, which helped underwrite $15.4 billion of WorldCom's bonds, agreed in March 2005 to pay $2 billion (46% or $630 million more than if it had accepted an investor offer in May 2004). JPMC was the last big lender to settle, making the second largest payment in the case (behind Citigroup’s $2.6 billion in 2004).||J.P. Morgan Chase settles WorldCom suit for $2 billion|
|Bond swaps for Jefferson County, Alabama||2009/11/04||SEC||$722 million||State of Alabama||JPMC agreed to a $722 million settlement with the SEC to end a probe into sales of derivatives that helped push Alabama’s most populous county to the brink of bankruptcy (November 2009).||JPMorgan ends SEC Alabama swap probe for $722 million|
|Truth in Lending Act litigation||2012/07/23||Credit card holders||$100 million||Customers||Fourteen lawsuits were filed against JPMC in various district courts in 2008-2009 on behalf of JPMC credit card holders claiming the bank violated the Truth in Lending Act, breached its contract with consumers, and committed a breach of implied covenant of good faith and fair dealing. The lawsuits claimed that JPMC, with little or no notice, increased minimum monthly payments from 2% to 5% on loan balances transferred to consumers' credit cards based on the promise of a fixed interest rate. The U.S. District Court for the Northern District of California certified the class action lawsuit in May 2011, and on July 23, 2012, JPMC agreed to a settlement of $100 million.||JPMorgan Chase settles with credit card customers for $100 million|
|U.S. securities mismanagement||2018/12||SEC||$135 million||Investors||In December 2018, JPMC paid a settlement of $135 million for SEC allegations that it mishandled U.S. securities that represent shares of foreign companies.||JPMorgan record not so clean with money laundering, manipulation|
|Money laundering||2018/12||Hong Kong Monetary Authority (HKMA)||$1.6 million||In December 2018, JPMC’s Hong Kong branch was fined $1.6 million for breaching anti-money laundering and counter-terrorist financing rules.||JPMorgan record not so clean with money laundering, manipulation|
The chief of staff to the Senator who chaired the appropriations committee that included HUD once complained to me, "HUD is being run as a criminal enterprise." While I agreed with that statement, I can assure you it was made possible by JPMorgan running the HUD accounts, servicing, and foreclosures for which they were responsible as a criminal enterprise.
Sitting back and reviewing the settlements that have been made public, it is hard for me to find a better description than "criminal enterprise." With the mortgage bubble engineered throughout the Clinton and Bush Administrations followed by $24 trillion of bailouts, JPMorgan made a small fortune and used settlements to kick back a portion to their partners in the federal government. Speaking as the former Assistant Secretary of Housing and former lead financial advisor to the FHA/HUD, engineering the mortgage bubble required significant intentional leadership by the U.S. Treasury, HUD, the New York Fed, and the New York Fed member banks. This was an orchestrated financial coup d’état. Although JPMorgan was far from alone, its role was significant.
The engineering of the U.S. housing and mortgage bubble in the 1990s was a devastating turn of events for the American people. Lulled by the false prosperity of easy money, Americans borrowed liberally for education and homes, not appreciating that the globalization being financed by JPMorgan and the banking industry would dramatically reduce their ability to repay that debt. In addition, the traditional usury and consumer protections to prevent fraudulent inducement and predatory lending were changed as college tuitions and consumer interest rates skyrocketed. The harvest was on—and JPMorgan Chase profits did nothing but rise. Thanks in part to the repeal of key provisions of Glass-Steagall and extraordinary lobbying during the financial crisis, the people drained in the harvest found themselves on the hook as taxpayers for the banking industry mess. The ultimate bailouts totaled $24 trillion. On all accounts, JPMorgan made out like a bandit.
While there are numerous examples of JPMorgan's socially irresponsible conduct leading the financial system during the last two decades, I will focus on two.
First, $21 trillion has gone missing from DOD and HUD since fiscal 1998, as documented in our 2018 Annual Wrap Up: The Real Game of Missing Money. We do not know what portion of those transactions went through federal bank accounts at JPMorgan. We do not know what securities were fraudulently or secretly issued through JPMorgan. We do not know what portion of those transactions reflect securities operations by JPMorgan on behalf of the ESF or other Treasury funds. What we do know is that we have a significant number of transactions that are in violation of the U.S. Constitution and federal financial management laws and that JPMorgan—as a shareholder of the New York Fed and a bank and securities dealer—continued to transact and finance the federal government while making extraordinary profits at essentially (as proved by the bailouts) little or no risk.
I am often asked why I bring up the missing $21 trillion if it is not possible to get the money back. I do not agree that it is impossible to get it back. The Department of Justice has historically supported a theory of common right of offset in which a government contractor is legally responsible for government losses and opportunity costs. Given JPMorgan's assets and earning power, it is obvious they and the responsible officers and board members have the capacity to return some or all of the portion of the illegal transactions for which JPMorgan was responsible.
Thanks to FASAB 56, however, we are now in a world where we will have no idea how much money is going missing from federal agencies. This means that JPMorgan will continue to distribute U.S. Treasury and related securities, or purchase them in their asset management operation, knowing that the federal government is operating on essentially a criminal basis—having negated basic disclosure in a major portion of the U.S. securities market. JPMorgan also appears to have done nothing when the government threatened the very existence of any rating agency that lowered the U.S. federal credit.
The second is the Madoff Ponzi scheme. The person who has provided us with the most compelling case study of JPMorgan's business model is the brilliant New York attorney, Helen Chaitman. Chaitman is the author of a book and website co-authored by Lance Gotthoffer, titled JPMadoff: The Unholy Alliance between America's Biggest Bank and America's Biggest Crook.
Helen joined me on The Solari Report to discuss her experience litigating on behalf of the victims of the Madoff Ponzi scheme:
In our interview, I learned that Madoff's investment operation had only one bank account from the mid-1990's until he was arrested. That bank account was at JPMorgan. I asked Helen who the securities custodian was. She explained that there was none, as no securities had been purchased. Indeed, billions had sat at JPMorgan uninvested or transferred through JPMorgan to a variety of beneficiaries of the Ponzi scheme. In short, JPMorgan had known that the Madoff investment operation was a Ponzi scheme all along. I remember commenting to Helen, "JPMorgan was the senior partner." JPMorgan was the controlling partner for more than a decade in a $60 billion Ponzi scheme. Indeed, if you look at our table, you will see a major settlement by JPMorgan for its role in Madoff.
As I look across the numerous roles played by JPMorgan in market manipulations, Ponzi schemes, and trillions in money missing from the U.S. government or spent through the bailouts, I find it difficult to find a description for their business model other than criminal enterprise.
And yet a significant number of SRI and ESG institutional investors disagree. Indeed, JPMorgan has committed major resources to documenting how much it cares about social and community responsibility. If you have studied JPMorgan's involvement in a wide variety of shenanigans, you will find their responsibility reports a shining example of corporate creativity.
Unfortunately, JPMorgan's positive return on equity depends on running the U.S. government at a deeply negative return to taxpayers with a spiraling U.S. treasury debt and liabilities problem and out-of-control fiscal spending and monetary printing. The resulting JPMorgan profits finance a small trickle of token projects that are indeed heartwarming. However, they do not change the fundamental nature of the business model. Twenty-one trillion dollars is still missing. Students throughout America still do not have access to bankruptcy. Credit card holders are still paying 12%-30% on their credit cards while JPMorgan is using federal credit to borrow for next to nothing. It used to be called usury. It used to be illegal.
If an SRI, ESG, or Christian investor is investing funds in JPMorgan, then they are not serious about ethical investment or they do not understand how the world works. Or both.
VII. Turning the Red Button Green
"We take on some of the most dangerous myths currently being pushed surrounding issues of climate, environment, 'greening' and unmask some of the dirty politics and global control measures behind it. What is happening is not just bad policy-making, but a psychological warfare aimed at the population, and especially the younger generations… and people must see it for what it really is." ~Aaron and Melissa Dykes, Truthstream Media
For those of you who are serious about using ESG to turn the red button green, here are suggestions to help you think through successful applications.
Let's get the basics right. There is no sense in requiring an investment in non-financial disclosure if we are corrupting and ignoring basic financial disclosure. Hold companies and governments accountable to provide transparency about operations and reliable and accessible financial disclosure. We will not achieve any ESG goals without excellence in traditional disclosure standards.
Real solutions require a proper diagnosis of real problems. Whatever ills we seek to address—whether environmental deterioration, inequality, or falling productivity—we need an accurate diagnosis of who and what is causing the problem. This is why secrecy is so harmful and transparency along the lines of traditional disclosure standards is so important.
Our governance model on Planet Earth is secret—let's bring transparency to it. How can we identify or implement real solutions when we are playing in the dark? Why do we not know who is in control?
This raises many of the risk issues we face as a society. Why are the people who run governance—whoever they are—working so hard to centralize political and economic control? What are the risk issues they are managing? How do we reduce their risks so they can operate on a more transparent basis?
Our analysis needs to look at population and demographics, resource use, and the introduction of new technologies on an unregulated basis. Why is planetary leadership in a rush to build a multiplanetary civilization? Why are they replacing markets with centrally controlled technocracy in defiance of existing laws and without popular understanding and support?
The central banking-warfare model is breaking down. That means there are numerous aspects that must be addressed.
First, central banks have monopolies using fiat currency. In most areas, they prevent the emergence of community currencies and use fiat currency to debase values in a manner that harvests economies. We need to convert to sound money systems. Current prototypes indicate that digital currency will take us in the opposite direction—by keeping the fiat system going on a deeply invasive basis and furthering central control.
Second, trillions of dollars have been moved illegally out of sovereign governments or have been fraudulently "printed" and steered in quantitative easing programs by the central banks. If we have a global reset, we need to reset those resources back to the lawful owners. How can you ignore a series of "bank robberies" while insisting that the financial system has sufficient integrity to introduce and enforce non-financial disclosure and standards? You can't!
Third, the largest global business is war, and the national security state and global war machine are causing the greatest man-made damage to the environment. Sources of damage include global spraying, weather manipulation, depleted uranium, nuclear testing (including nuclear testing in the upper atmosphere), HAARP, CERN, military sonar, EMF radiation, militarized drones and robots, nanoparticles, nuclear bombs and waste, and space junk—not to mention false flags and suppression of energy, health knowledge, patents, and technology. High-tech warfare is taking us in a very dark direction that investors need to reverse.
In addition to war, the global financial markets are dependent on transnational organized crime. The governance structure has used organized crime to centralize wealth and control. Given the power and control of the central banks' payment systems and the Five Eyes surveillance systems, organized crime is entirely under the control of the establishment, including expensive enforcement funded by taxpayers, supposedly to prevent such activities. ESG investors need to stop pretending otherwise. ESG top holdings often read like a "who's who" of the alleged money launderers.
Fourth, our economic model is based on debt combined with fiat currency. We need to establish pathways to an equity-based model if we are going to align interests between financial assets and living things.
Finally, U.S. government resources are managed on a negative return on investment basis—this is at the heart of the national security state. Shifting them to a positive return will require place-based disclosure, public accountability, and freedom for currencies and equity to circulate locally.
In connection with the national security state, we have built up significant covert operations and private mercenary armies that profit from false flags, financial fraud, human trafficking, pedophilia networks, and the use of electronic entrainment, subliminal programming, and other forms of mind control to practice free-range slavery. These networks have funded centralized efforts to debase the culture and destroy the family unit. As a result, we are experiencing the emergence of a powerful psychopathic leadership class, including in positions of power in the media and Hollywood. Real change requires the ability to identify psychopaths and ensure that they are not allowed to assume significant leadership positions.
For ESG to be successful, we need a way to practice serious shunning of psychopaths instead of making them bolder by pretending they are socially responsible through ESG investment. Consider Wikipedia's definition of Stockholm syndrome: "Stockholm syndrome is a condition which causes hostages to develop a psychological alliance with their captors during captivity. These alliances result from a bond formed between captor and captives during intimate time together, but they are generally considered irrational in light of the danger or risk endured by the victims."
Too many sectors of the ESG industry display characteristics of the Stockholm syndrome.
The U.S. led the creation of a global trade system after WWII. After the breakup of the Soviet Union in 1989-1990, the U.S. attempted to convert this system to a unipolar model operating through both military and financial and legal controls. The unipolar effort has now failed. We are in the process of converting to a multipolar world. The resulting tensions are real and rising, and the process is more than dynamic.
Any sincere ESG effort needs to address the fact that the world order is changing. And with these changes, competition is rising for natural resources—land, food, water, and energy. If some regions practice ESG and some do not, there may be unintended consequences. Let's get smart about both resource use and competition.
The most important decisions before us come down to whether or not we will choose to be a society governed by the rule of law, and whether we are committed to a human society or will tolerate progressively more inhuman behavior—what some refer to as transhumanism but the Solari team refers to as subhumanism. We are experiencing a significant effort by some governments and large corporations to combine surveillance capitalism and mind control—with some of the more egregious examples overriding the Nuremberg code and international laws. These areas warrant major attention from ESG investors.
I am always astonished when I hear that capitalism has failed. Free markets and capitalism are things we should try. However, they require the rule of law. There is a profound difference between organized crime and the national security state, on the one hand, and capitalism, on the other. Perhaps proponents of ESG can help us see that more clearly.
The centralization of political and economic power has resulted in a significant reduction of what is otherwise possible in our cultures and economies. As we grapple with the evolution of our governance, financial, and economics models, it is important to remember that freedom and markets allow for optimization. Lawlessness and tyranny do not. If ESG, as a movement, can serve the forces of freedom, a great deal of wealth can be created.
At the heart of the effort to prevent technocracy lies a great deal of opportunity—for you, for me, and for everyone. Technocracy only works for a few. Freedom can work for everyone.
VIII. ESG: What Should You Do?
"The wise man does at once what the fool does finally." ~Niccolo Machiavelli
The ESG industry and the application of non-financial regulations and disclosure are growing quickly. This effort ties into the push to integrate Agenda 21/30 into multiple domestic and international legal and regulatory standards, with the rules monitored by AI, software, and online systems as the very heart of technocracy. These complex rule systems will increase central control of natural resources and consolidate market share into large corporations as they are integrated into expanded business and investor disclosure in the U.S., Commonwealth countries, and Europe. Increased central control will be marketed under the rubric of "climate change" and "saving the planet."
From the leadership's perspective, there is some urgency to this effort. Without a mechanism to radically reduce Western standards of living, financial and consumer markets will begin to express the true cost to household budgets of liberal monetary and fiscal policies, the financial coup d’état, and military and intelligence expenditures. In the face of potential financial hyperinflation, the best defense is a good offense. So, why not engage the young people in "saving the planet" through rules that will achieve demand destruction? One of the reasons we are hearing more proponents of socialism marketing to the younger generations is that doing so allows for greater central control of economic resources than existing control systems.
What all of this means is that ESG in multiple forms is coming your way.
The impact of ESG compliance will be felt by large companies first. However, it will eventually make its way to smaller businesses, farms, and ranches. In fact, the agriculture sector and some small businesses have been grappling with Agenda 21/30 for quite a while.
You will want to be prepared to manage the technocracy wave, including this aspect. It is worth taking the time now to understand the ESG game and prepare strategies for how you will manage the compliance and expense. It can be frustrating for business executives and owners who don't understand the real game.
Here are two resources to help you prepare:
- Killing Sustainability: Blunt Truths about Corporate Sustainability/Social Responsibility Failures and How to Avoid Them by Lawrence M. Heim (see my book review); and
- The Business Logic of Sustainability by Ray Anderson, CEO of Interface, Inc. (in the Movies and Documentaries section).
Heim and Anderson can help you think through how to navigate this regulatory wave to get something meaningful accomplished that contributes to performance—without getting drowned by the aggravation and expense.
Do not wait for these regulatory efforts to come knocking at your door. Get educated and start acting now to get ahead of the wave. Appreciate that many of your customers, clients, and vendors will be subjected to an enormous amount of propaganda and lies about climate change and resource management. If you are going to deal with this situation effectively, you need to educate yourself on how entrainment and propaganda work on customers and employees—and have strategies ready.
The same wave of rules and regulations is rolling down on regional and local governments—and the same advice applies. You need strategies that allow you to achieve meaningful responses to the real environmental and economic problems before us, while managing the expectations of a highly misled and naive population (whether employees, taxpayers, or citizens).
The first thing you need to decide is whether you want to take personal responsibility for understanding where your money is going—and for ensuring that it is going toward what you want to see grow in this world and that it is compatible with the personal and financial risks you are willing to take to get investment returns.
Next, think about how you might convert your investment model from one in which you buy products and services from corporations, while investing in corporations, to one in which you invest in providing your own products and services—both to yourself and to those around you.
Consider the basics: food, housing, and energy. All of these have the potential to make you more accessible to central control, taxation, and inflation; it is also becoming more difficult to ensure quality control. At some point, it becomes more economic for young people to learn how to build their own house and energy systems and grow their own food—or organize locally to do so—than to depend on systems that do not have integrity. Clearly, the situation will be different for every person and family. Nonetheless, it makes sense to look at the long term and identify any opportunities to disintermediate large companies and governments from your income statements and balance sheets. This includes investing in the young people in your family and community who are creating businesses that provide the services you need. Buy some farmland and lease it to young people who want to start a farm—they can pay their rent with meat, fruit, and vegetables.
After investing in your own business and infrastructure, here are your options for accounting for ESG considerations in your investments.
Step 1: Define your values and decide which are most important.
You will need a clear idea of who and what you want to support and who and what you want to avoid. As you can see from our description in the 3rd Quarter 2016 Wrap Up, I am focused on finding companies that are fundamentally productive—that is, they add economic value to their ecosystem and have a business model that is lawful.
In determining your investment criteria, the following are some of the issues worth considering:
- U.S. government securities—The U.S. federal government is the largest issuer of securities in the world. You need to decide if you want to invest in these securities due to the numerous credit considerations raised in The Real Game of Missing Money:
- Sovereign bonds—Screening global governments requires understanding and assessing the governance, management, policies, and budgets of individual governments. Your efforts will be enhanced by visiting the countries involved and doing first-hand due diligence.
- Municipal bonds—Screening municipal bonds requires reviewing the governance, management, budgets, and policies of the issuing government. There are some municipalities that I believe pass a serious ESG screen. There are others that do not. Again, it is advisable to visit the jurisdictions in question.
- Corporate bonds and stocks—Corporate investment constitutes the largest percentage of ESG investment. Focus your applications of values on both industries and companies. For example, because of my concern regarding delivery of surveillance capitalism, entrainment, and subliminal programming (including delivery of pornography and other entrapment applications), I screen out most large telecommunications, media, and social media companies as well as companies with an origin in or strong relationships with DARPA and NSA.
- Precious metals—Mining activities traditionally have had a noticeable environment impact. However, the environmental damage done by miners pales in comparison to the environmental damage done by central banks and fiat currencies paired with a debt-based system, not to mention the military machinery they finance. If you invest in precious metals, be prepared to explain the real environmental issues involved with both gold and silver mining and their currency alternatives.
- Jurisdictions—One of the most important investment decisions is who you choose as a custodian and under what legal jurisdictions your custodian and assets reside. This will bring you back to reviewing the lawfulness and competency of different countries and financial institutions. Again, it is advisable to do in-person due diligence.
- Risk/reward—An increasingly promoted theory is that investors do not have to tolerate reduced returns by doing ESG investing. In my experience, financial fraud, slavery, organized crime, and war are more profitable than most lawful businesses. However, they come with increased risks as well—whether financial or energetic. If ESG is dressed up to make criminals look socially responsible, then it is most likely that ESG returns will match the market index. My experience is that many well-crafted ESG portfolios are slighty conservative: less risk, less reward, and less volatility, with better protection of principal. The easiest way to test your portfolios is to back-test them against the relevant index.
Step 2: Emphasize governance as the most important of the three components of ESG.
The first thing I look at when I do due diligence on a company is "who's who." Who sits on the board? Who runs the management and operations? Who owns the stock? Who and where are the customers? Who and where are the employees? Who are the key vendors? Who are the attorneys and accountants? Who are the key regulators and related associations and politicians?
A company or municipal and government enterprise is—first and foremost—a human ecosystem with cultural, intellectual, and social flows. If a company or enterprise has excellent leadership at the governance and management levels, the resources will be present to maintain social responsibility and a healthy approach to the environment and use of resources. If the company does not benefit from excellent leadership, no amount of rules and systems will compensate.
My advice is to focus on the "G" in ESG and trust good governors and managers to sort out the "E" and "S" in the process of optimizing thousands of variables in complex systems in which the cost of time and resources is an essential input to good decisions.
Step 3: Decide how you will implement. Here are your choices:
1. If you manage your own money, you can apply your criteria as part of your own due diligence process. This is easier if your holdings are sufficient to access some of the software products created to help ESG investors.
2. Hire a money manager who will tailor an individualized portfolio to your specific instructions regarding a list of companies that are to be excluded from his or her list of approved investments.
3. Hire a money manager who uses an approved investment list that reflects an ESG screen sufficiently compatible with your values to be acceptable to you.
4. If you wish to use index funds for securities investment, ignore ESG. By and large, you will end up with the same stocks or bonds in an ESG index fund that would be in a general market fund. There is no point in taking on or encouraging the complexity of ESG if it is just going to be a more circuitous route to arrive at the same place.
5. Use an existing ESG mutual fund but recognize that you will have to make strategic compromises regarding values. I have never found a managed ESG mutual fund that reflected what I call "the real deal." However, there are some funds that are serious about values that are important—including issues of war and military spending. As the industry grows and competition increases, I anticipate that consumer demand will improve the offerings. Before you choose a mutual fund, make sure you look at their full holdings in the company prospectus to understand who and what they are really buying and holding.
Step 4: Return control of your family wealth to you and your family.
Central control of investment and capital is limiting personal opportunities and freedom. One of the most significant contributions you can make is to return control of your assets and capital to family control. If significant assets remain in institutional hands, consider taking on a more active role in monitoring and communicating with the institutions who manage your assets.
Step 5: Keep learning.
The adoption of FASAB 56 by the U.S. government, as well as policies to reduce traditional financial disclosure by governments, endowments, and companies around the world, are having a major impact on the investment world. Add to this picture the introduction of new, unregulated technologies—including technologies that can take invasive surveillance and mind control to a whole new level—and it is clear that significant ongoing change is upon us. This is an environment that calls for continuous learning regarding your vision of your future and your approach to managing your assets and investments.
For those who want a detailed review of ESG investing, I recommend:
- Handbook on Sustainable Investments: Background Information and Practical Examples for Institutional Asset Owners by CF Institute Research Foundation of the CFA Society of Switzerland
- Book Review: Responsible Investing by Matthew W. Sherwood & Julia Pollard
Know, however, that published sources will not give you the most important thing you need to grapple with the ESG phenomenon: a clear and coherent map of the world combined with your decisions about what values are most important to you. You will need to create these yourself—and the intent of The Solari Report is to help you do so. Keep on learning, and let the Solari team know how we can help.
"Freedom is the right to tell people what they do not want to hear." ~George Orwell
Will ESG turn the red button green? Given current trends and directions, the answer is no.
In the process of preparing this Wrap Up, the Solari team contacted and then mailed or e-mailed 100 copies of The Real Game of Missing Money to leading managers of SRI and ESG funds, leading Christian money managers, as well as several institutional managers who have expressed serious concerns about explosive government debt, environmental damage, and falling productivity. I offered to discuss or answer any questions they had. To date, I have not heard from anyone. Let that sink in—not one. The red button is alive and well, and it appears that too few are pushing it.
The weaponization of ESG in combination with the promotion of climate change myths are part of the global implementation of technocracy with software, AI, and IT systems, reminding me of one of Einstein's sayings: "Technological progress is like an ax in the hands of a pathological criminal." ESG's weaponization is being specifically designed to keep the red button from being pushed—using non-financial disclosure to white out the failure to comply with traditional financial disclosure.
Could ESG turn the red button green? Yes, absolutely. Given millions of highly intelligent investors and research analysts committed to a human future, I believe a positive outcome for ESG is possible. It all comes down to you and me, and what we say and do.
As always, I wish you Good Hunting!