J.P. Morgan Securities Inc. and two of its former managing directors have been charged with committing unlawful actions in connection with the Jefferson County, Alabama bond failure. The charges, which stem from a Securities and Exchange Commission (SEC) investigation, are the second instance of SEC enforcement actions arising out of the Jefferson County’s bond offerings and swap transactions.
The former J.P. Morgan managing directors, Charles LeCroy and Douglas MacFaddin, made more than $8 million in payments to friends of Jefferson County commissioners. After these payments had been made, said County commissioners voted to select J.P. Morgan as managing underwriter of the Jefferson County bond offering. In addition, J.P. Morgan’s affiliated bank was given the contract as swap provider for the transactions.
The situation was exacerbated by J.P. Morgan failing to disclose the payments or the conflicts of interest in any confirmation agreements or offering documents. The cost of the $8 million in payments, however, was passed on to the county in the form of higher interest rates on the swap transactions.
As summed up by Robert Khuzami, Director of the SEC’s Division of Enforcement, “The transactions were complex but the scheme was simple. Senior J.P. Morgan bankers made unlawful payments to win business and earn fees.” The business and earned fees, however, have cost J.P. Morgan quite a substantial sum.
This particular SEC charge was settled with J.P. Morgan with the broker-dealer firm paying a penalty of $25 million. In addition, J.P. Morgan will make a payment of $50 million to Jefferson County and forfeit over $647 million in claims it says the County owes under the swap transactions.
Birmingham Mayor Larry Langford and two others were the target of the prior enforcement action arising out of the SEC investigation. Langford has been found guilty in a parallel case and is currently awaiting sentencing.
For more information on Aidikoff, Uhl, & Bakhtiari’s current investigation regarding this matter, please click here.
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