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. The commissioners JPMorgan sought to influence included Larry Langford, Shelia Smoot, Mary Buckelew, Steve Small and Jeff Germany, the lawsuit says.
The SEC settled the lawsuit with J.P.Morgan, but not the two bankers.
As part of the settlement, J.P. Morgan will forfeit $647 million of interest rate swap termination fees. 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.
"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. In exchange, Blount and lobbyist Al LaPierre gave Langford more than $235,000 of cash, jewelry and clothes.
However, 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. 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. At the commissioners' insistence, JP Morgan directed business to two minority firms, Gardnyr Michael and ABI Capital, the lawsuit says.
JPMorgan paid each bank $250,000, but it did not disclose the payments to the public.
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.
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. None of the fees were disclosed in the bond deal documents.
Also, 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.
The SEC settled the lawsuit with J.P.Morgan, but not the two bankers.
As part of the settlement, J.P. Morgan will forfeit $647 million of interest rate swap termination fees. 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.
"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. In exchange, Blount and lobbyist Al LaPierre gave Langford more than $235,000 of cash, jewelry and clothes.
However, 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. 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. At the commissioners' insistence, JP Morgan directed business to two minority firms, Gardnyr Michael and ABI Capital, the lawsuit says.
JPMorgan paid each bank $250,000, but it did not disclose the payments to the public.
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. So, "Larry," I said -
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." You know?
MacFaddin: [Laughing] Yeah, you end up in the wood-chipper.
LeCroy: Yeah, that's right. So he said, "Don't worry, I can control him. Just get him on board." And he says he might have a couple of other little local minority firms to take care of, but he said, "Let's see if we can get if done."
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. None of the fees were disclosed in the bond deal documents.
Also, 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.
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