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Nov-05-2009Municipal bond case settled by JP Morgan(topic overview)
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The Securities and Exchange Commission says investment bank JP Morgan Chase & Co. will pay a $50 million penalty to Jefferson County and forfeit $647 million in swap termination fees in a settlement related to county bond deals. The SEC said this morning that it had charged J.P. Morgan Securities Inc. and two of its former managing directors for their roles in an unlawful payment scheme that enabled them to win business involving municipal bond offerings and swap agreement transactions with Jefferson County. [1] The Securities and Exchange Commission said Wednesday that JPMorgan Chase had agreed to pay $75 million in penalties and as well as forfeit $647 million in termination fees to settle civil charges that its securities firm had engaged in an "unlawful payment scheme" to win municipal bond business in Jefferson County, Ala.[2]
Law360, New York (November 04, 2009) -- JPMorgan Chase & Co. has agreed to pay more than $720 million to put to rest claims by the U.S. Securities and Exchange Commission of improper payments intended to procure business involving municipal bond offerings and swap agreement transactions in Jefferson County, Ala.[3]
"The transactions were complex but the scheme was simple: senior JPMorgan bankers made unlawful payments to win business and earn fees," Robert Khuzami, director of the S.E.C.' s enforcement division, said in a statement. The S.E.C. previously filed charges against Birmingham's former mayor, Larry Langford, and two others for undisclosed payments to Mr. Langford related to municipal bond offerings and swap agreement transactions that he directed on behalf of Jefferson County while serving as president of the county commission.[2] J.P. Morgan Securities was charged with making unlawful payments to win business involving municipal bond offerings and swap agreement transactions with Jefferson County, Alabama.[4]
WASHINGTON (Dow Jones)--J.P. Morgan Securities Inc. on Wednesday settled charges with the U.S. Securities and Exchange Commission for two former managing directors' alleged roles in an unlawful payment scheme that enabled them to win business involving municipal-bond offerings and swap-agreement transactions with Jefferson County, Ala.[5] WASHINGTON, Nov 4 (Reuters) - J.P. Morgan Securities Inc. will pay $75 million to settle charges in an unlawful payment scheme in the sewer financing of Jefferson County, Alabama, the Securities and Exchange Commission said on Wednesday.[6]
The investment bank will also pay a penalty of $25 million to the SEC and $50 million restitution to Jefferson County. The bank admits no wrong-doing, but the lawsuit accuses J.P.Morgan Securities and the two bankers, Charles LeCroy and Douglas MacFaddin, of arranging more than $8 million of payments to close friends of multiple Jefferson County commissioners in exchange for them doing business with J.P. Morgan. As part of a wider investigation, federal authorities had wiretaps on the bankers and recorded incriminating statements from them. In one conversation, LeCroy told MacFaddin what he had told the commissioners.[7] J.P. Morgan Securities, a unit of JPMorgan Chase & Co. (JPM), will pay a penalty of $25 million, make a payment of $50 million to Jefferson County, and forfeit more than $647 million in claimed termination fees, the SEC announced.[5] J.P. Morgan Securities agreed to settle the SEC's charges without admitting or denying the allegations. It will pay $50 million to the county for the purpose of assisting displaced county employees, residents and sewer rate payers and forfeit more than $647 million in termination fees it claims the county owes under the swap transactions.[1]
In addition to forfeiting the $647 million in fees, the S.E.C. said J.P. Morgan Securities would make a payment of $50 million to Jefferson County. It will also pay a penalty of $25 million.[2] The SEC alleges that J.P. Morgan Securities and former managing directors Charles LeCroy and Douglas MacFaddin made more than $8 million in undisclosed payments to close friends of certain Jefferson County commissioners.[1] The firm settled the charges without admitting or denying the allegations against it. In its complaint, the S.E.C. accused JPMorgan Securities and two former managing directors, Charles LeCroy and Douglas MacFaddin, of making more than $8 million in undisclosed payments to close friends of some Jefferson County commissioners. The agency said those friends owned or worked at local broker-dealer firms that performed no known services on the transactions.[2] The Securities and Exchange Commission announced this morning that it settled securities fraud and other charges with JPMorgan Securities Inc. and is pursuing charges against two of the firm's former managing directors, Charles LeCroy and Douglas MacFaddin, in connection with muni bond and swap transactions done with Jefferson County, Ala.[8]
Civil charges filed by the SEC allege that JPMorgan managing directors Charles LeCroy and Douglas MacFaddin made more than $8m in payments to friends of officials in Jefferson County, Alabama, to help the bank gain an underwriter assignment on a $1.4bn county bond. This entry was posted by Gwen Robinson on Thursday, November 5th, 2009 at 4:44 and is filed under Capital markets.[9] LeCroy and MacFaddin refused to settle. In a complaint filed in federal court in Birmingham, the SEC said they made more than $8 million in undisclosed payments to close friends of certain Jefferson County commissioners, to ensure JPMorgan would be selected as managing underwriter of the bond offerings and its affiliated bank would be chosen as swap provider.[8] In connection with the payments, the S.E.C. said, the county commissioners voted to select JPMorgan Securities as managing underwriter of the bond offerings and its affiliated bank as swap provider for the transactions. It said JPMorgan Securities did not disclose any of the payments or conflicts of interest in the swap confirmation agreements or bond offering documents, yet passed on the cost of the unlawful payments by charging the county higher interest rates on the swap transactions.[2] The settlement with the SEC "does not impair any outstanding Jefferson County bonds and JPMorgan continues to work to achieve a responsible restructuring of Jefferson County's financial affairs," the statement said. The SEC last year charged former Birmingham, Ala., mayor Larry Langford and two others for undisclosed payments to Langford related to municipal bond offerings and swap agreement transactions made while he was president of the Jefferson County Commission.[10]
The firm will pay a $25 million penalty to the SEC that will be placed in a Fair Fund to compensate harmed investors and the county in the municipal bond offerings and the swap transactions.[1]
The SEC said the bank would pay a penalty of $25 million and would pay $50 million to the county, which includes Birmingham, Alabama's largest city. Jefferson County accumulated its debts earlier this decade through swap and other bond deals to finance improvements to its sewer system.[11] In the settlement, J.P. Morgan Chase & Company did not admit guilt but settled allegations the New York investment bank illegally paid friends of Jefferson Co. Commissioners to land hundreds of millions of dollars in bond work. "It seems our future is improving every minute," said Bettye Fine Collins, Jefferson County Commission President. She said the settlement should bring the county even closer to ending the sewer debt crisis. "It shows movement we have been victimized," Collins said.[12] The SEC lawsuit indicates J.P. Morgan paid out as much as $8 million in undisclosed fees to commissioners' friends ''' more than the $7 million Blount received. According to the SEC lawsuit, in their conversations, LeCroy and MacFaddin characterized the payments as "payoffs," "giving away free money" and "the price of doing business." The bond deals JP Morgan received were among the largest in its history, the lawsuit says. According to the lawsuit, the bankers began their scheme in 2002 by targeting Jeff Germany and an unnamed black commissioner who had also lost his primary race for county commission.[7] The SEC believes the scheme began in July 2002, when LeCroy and MacFaddin solicited Jefferson County on behalf of J.P. Morgan Securities for a $1.4 billion sewer bond deal.[4]
"Senior JPMorgan bankers made unlawful payments to win business and earn fees." MacFaddin's attorney, Richard Lawler, said his client "has at all times acted properly" in his dealings with Jefferson County. "He denies he has violated any securities laws and we're confident he'll be vindicated after trial," Lawler said. LeCroy's lawyer, Lisa Mathewson, said he "believes that the SEC has overreached with this complaint, both by overstating its jurisdiction and by labeling permissible business practices as fraudulent." New York-based JPMorgan said in a statement it has since discontinued its municipal swap-exchange business.[10] WASHINGTON — JPMorgan Chase & Co. has agreed to a settlement worth more than $700 million over federal regulators' charges that it made unlawful payments to friends of public officials to win municipal bond business in Jefferson County, Ala.[10]
The SEC alleged that JPMorgan, LeCroy and MacFaddin made about $8 million in undisclosed payments to close friends of several Jefferson County commissioners.[10] The SEC claims that JPMorgan and two former managing directors paid more than $8.2 million to local Alabama firms and broker-dealers with ties to Jefferson County public officials, looking to.[3]
JPMorgan agreed to pay a penalty of $25 million to the federal government, $50 million to Jefferson County, Ala., and to forfeit more than $647 million of claimed termination fees.[8] The Wall Street bank did not admit or deny the SEC allegations in agreeing to pay a $25 million civil fine and a $50 million payment to the county, and to forfeit $647 million in termination fees it claims the county owes from the canceled swap agreements.[10] The bank will pay $75 million and forfeit more than $647 million it claimed in bond swap termination fees, the U.S. agency announced in Washington on Wednesday.[11]
As part of the settlement, J.P. Morgan will forfeit $647 million of interest rate swap termination fees.[7] J.P. Morgan also will forfeit more than $647 million it claimed in termination fees on the swaps that left the county on the edge of bankruptcy.[6]
The county is dealing with $3.9 billion of debt and was pushed to the brink of bankruptcy as JPMorgan claimed more than $647 million in termination fees on swaps.[13] The county's sewer debt grew to $3.9 billion, including the swap termination fees.[2]
Commissioner Jim Carns, who oversees the sewer department, said any new bond deal must only be around $1 billion and be paid off with existing sewer rates. "That is $3.2 billion we can't pay," Carns said. "We don't have enough customers to pay and we have raised the rates as high as we can raise them and it doesn't work." If there is no movement towards settling the sewer bond debt, commissioners said they will support taking J.P. Morgan and others to court. "If they don't go to the mat and fix this, we will sue, we will sue, we will sue," said Shelia Smoot, Jefferson Co. Commissioner.[12] Smoot was not named as a defendent in the SEC compliant filed in Birmingham federal court, but Smoot, along with former Commissioners Jeff Germany and Larry Langford are mentioned. The compliant does name Charles LeCroy and Douglas MacFadden, both former J.P. Morgan officials, as those who paid money to friends of those commissioners to get work for JP Morgan. Smoot's attorney, Bryron Perkins, says the commissioner denies she used unethical influence in awarding county bond work.[12] The county commissioners voted to select J.P. Morgan Securities as managing underwriter of the bond offerings and its affiliated bank as swap provider for the transactions.[4] J.P. Morgan did not account any of the payment to the commissioners, instead it passed on the cost by charging the county higher interest rates on the swap transactions.[4]
The bankers made unlawful payments to win business and earn fees, Robert Khuzami, director of the SEC's enforcement division, said in a statement. The commission said that J.P. Morgan Securities did not disclose any of the payments it received or its conflicts of interest in the swap agreements.[6] In addition to the monetary relief, the SEC's order censures J.P. Morgan Securities and directs it to cease-and-desist from committing or causing any further violations of the provisions charged. The SEC lodged a complaint against the two former managing directors in the U.S. District Court for the Northern District of Alabama for their involvement in the unlawful payment scheme.[4]
The SEC alleged that JP Morgan (NYSE: JPM ) made unlawful payments to the friends of county officials as means of winning new business with the county.[14]
JP Morgan agreed to a settlement with the SEC over "pay-to-play" violations stemming from municpal debt offerings out of Jefferson County, Alabama.[14] "The settlement does not impair any outstanding Jefferson County bonds, and J.P. Morgan continues to work to achieve a responsible restructuring of Jefferson County's financial affairs," it said in a statement.[11]
BIRMINGHAM, AL (WBRC) - A key player in Jefferson County's bond swap deals has agreed to pay more than $700 million to settle a lawsuit with the Securities and Exchange Commission.[12] The Securities and Exchange Commission on Wednesday announced the settlement with JPMorgan, which canceled interest-rate swap contracts with the county worth $700 million in March.[10]
The Securities and Exchange Commission has sued J.P.Morgan Securities and two of its former bankers for using "unlawful incentives" to win business from Jefferson County commissioners.[7]
Senior JPMorgan bankers made unlawful payments to win business and earn fees," said Robert Khuzami, director of the SEC's division of enforcement.[8]
In a civil lawsuit, the SEC also accused two former managing directors of JPMorgan, Charles LeCroy and Douglas MacFaddin, of securities law violations. The agency is seeking unspecified restitution from them. They will contest the charges.[10] Later, JPMorgan directed bond business to Montgomery investment banker Bill Blount at the insistence of then-Commission President Langford. The lawsuit transcribes a conversation between LeCroy and MacFaddin in which LeCroy recounts his encounter with Langford. LeCroy: This time the advice we're getting is to get with Bill Blount early, bring him in by bringing him on our team, so he doesn't go to a competitor. MacFaddin: That sounds fine. LeCroy: I said, "Commissioner Langford, I'll do that because that's your suggestion, but you gotta help us keep him under control. Because when you give that guy a hand, he takes your arm."[7] "Whatever you want ''' if that's what you need, that's what you get ''' just tell us how much," LeCroy recalled. Last week, Langford was found guilty of directing slightly more than $7 million of bond business to his friend, Montgomery investment banker Bill Blount.[7]
JP Morgan paid for a $1,122 spa trip for Commissioner Buckelew. LeCroy instructed an associate to put the bill on his personal credit card so it would not show up in any of the bond deal's documentation. Taped conversations show that both LeCroy and MacFaddin knew of the favor for Buckelew.[7] If true, the only person that could be is former Commissioner Steve Small. In wiretapped conversations, LeCroy told MacFaddin that Germany and the unnamed commissioner were anxious to get the first major bond deal done before they left office in November 2002 and had threatened to fire J.P. Morgan if they did not direct consulting business to their chosen banks.[7]
In another deal, MacFaddin and LeCroy arranged payments to Gardnyr Michael and ABI Capital. This time, those two firms had hired one of Smoot's longtime friends as a "consultant," the lawsuit says. Smoot insisted the bankers pay more to the two firms and JP Morgan had to increase their fees for them.[7]
The agency said J.P. Morgan Securities will pay a penalty of $25 million and pay the county, which includes the city of Birmingham, $50 million.[6] In the settlement, the bank agreed to pay $25 million in civil penalties, make a $50 million payment to the county and cancel interest rate swaps that were worth $700 million as of last March.[14] JPMorgan will pay a civil penalty of $25 million, pay $50 million to the county, and forfeit the $647 million that it said was owed by the county. It will not have to admit to or deny the SEC's allegations.[13]
JPMorgan Chase will pay $75m and forfeit claims on nearly $650m in termination fees to settle US allegations that the bank and two former employees paid friends of officials to win municipal financing business in Alabama.[9]
Are you kidding me?? So this outfit gets to pay their little "fine" and they're STILL allowed to do business with municipalities?? Let some other bank take their place. Who but the most distracted fool thinks this $75 million figure constitutes punishment? That's chump change for these guys. They just made $3.6 billion this past quarter (that's $40 million a DAY) thanks to the taxpayers subsidizing them with 0% loans from the Federal Reserve. We're suckers for putting up with this, we really are.[2]
The settlement could have a big impact on the county's debt of around $4 billion, of which the bank was the largest creditor.[11] The move lowers the county's bond debt to about $3.2 billion from $3.9 billion, but officials had no immediate comment on whether that was enough to help the county avoid filing what would be the largest municipal bankruptcy ever.[10] Starting in July 2002, LeCroy and MacFaddin solicited the county for a $1.4 billion sewer bond deal.[10] Jefferson County commissioners said the settlement should force all parties in the sewer bond deal to make a new agreement, one that is affordable to all sewer rate customers and taxpayers.[12]
The county, home of Birmingham, the state's largest city, has been pushed to the brink of bankruptcy as a result of the bond offerings and credit-default swap transactions involved in financing sewer projects.[2]
The bank said it was pleased to have reached a settlement with the SEC, noting that the charges principally relate to municipal derivatives transactions that occurred six or seven years ago in a business now discontinued. [11] J.P. Morgan has settled the SEC's charges without admitting or denying the allegations.[4]
In all, the settlement would cost J.P. Morgan Securities over $700 million.[4] If JP Morgan Chase gives the 50 million up front, then that would bring back every county employee.[1] At the commissioners' insistence, JP Morgan directed business to two minority firms, Gardnyr Michael and ABI Capital, the lawsuit says.[7]
Regulators have issued warnings for years over so-called "pay-to-play" relationships between investment firms and government officials in the $2.7 trillion municipal bond market, tapped by state and local governments around the country to finance schools, roads, hospitals and public works projects. [10] In July, the SEC proposed tightening rules governing disclosures about municipal securities to aid investors in the municipal bond market.[10]
The county's sewer debt ballooned to $3.9 billion including the fees, which were never paid. [1] How about applying it to pay down the debt? Typical Jefferson County resident nonsense.[1] "I think it brings us a step closer to work out a compromise in the best interest of citizens of Jefferson County," said William Bell, Jefferson Co. Commissioner.[12] Maybe now is good time for David Bronner and RSA to invest in Jefferson County and loan the county $3.2B.[1]
SOURCES
1. SEC: JPMorgan will forfeit $647 million in fees under settlement | Breaking News from The Birmingham News - al.com
2. JPMorgan to Pay $75 Million in Alabama Case - DealBook Blog - NYTimes.com
3. JPMorgan Settles Ala. Muni Bond Claims for $700M - Law360
4. RTTNews - Latest Earnings,Upcoming Earnings, Pos Pre Announcements, Pos Pre Announcements , Positive Surprises, Negative Surprises, Hot Stocks, Stock Split Calendar, Stock Buybacks, Dividends, Negative, Positive PreAnnouncements,Surprises .
5. CORRECT: JP Morgan Securities In SEC Settlement - WSJ.com
6. UPDATE 1-JPMorgan to pay $75 mln to settle muni charges - Forbes.com
7. JPMorgan settles with SEC over Jefferson County bonds business
8. JPMorgan Settles, SEC Charges 2 Former Officials in Jefferson Co. Deals
9. FT Alphaville » Blog Archive » JPMorgan to settle Alabama case
10. The Associated Press: JPMorgan settlement with SEC worth over $700M
11. UPDATE 3-JPMorgan, SEC in $720 mln muni bond settlement | Deals | Regulatory News | Reuters
12. J.P. Morgan settles Jefferson County bond swap lawsuit - WSFA 12 News Montgomery, AL |
13. JPMorgan Chase Pays More Than $700 Million to Settle SEC Charges on Municipal Bond Payment Scheme (JPM) - Comtex SmarTrend Alert
14. JP Morgan Fined By SEC For Municipal Bond Violations | Market News Video
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