Larry Langford didn't shop alone.
Is it a conspiracy theory I'm waxing? Maybe, but if the statute of limitations hasn't lapsed, conspiracy can be a federal offense.
The first swindles began before Langford even arrived on the county commission.
Thanks to a Securities and Exchange Commission lawsuit filed last week, we can now see some of what was happening as early as 2002. Better yet, we can listen. A federal investigation into JP Morgan's municipal bond investment bankers involved wiretaps, and the conversations those bankers had are revealing. It's a lot easier to tell the truth when you think no one else is listening.
At the time, the Jefferson County Commission was changing. Two commissioners, Jeff Germany and Steve Small, had lost their reelection campaigns, and a new majority would soon be in charge. JPMorgan banker Charles LeCroy told his colleague, Douglas MacFaddin, that the lame duck majority wanted to move forward on a $840 million bond deal quickly.
"And I've been told by the other four [commission] members now that if I don't get it done by November 1 they're gonna fire [me] because they want it done before they lose control, because they want to help all their friends," LeCroy said.
The deal got done. Germany and Small directed business to two local firms, Gardnyr Michael and ABI Capital, at least after an extended conversation between LeCroy and MacFaddin about how to define the firms' roles in bond disclosures. It wasn't easy to do, as neither firm had done any real work, the two men said.
"[W]hat we're saying is, it's really Jeff Germany who is directing us to pay these guys," MacFaddin said. "It's not, we're not paying them because they were our advisor."
According to LeCroy, he had no idea whether either bank had done anything at all.
After the 2002 election, the commission soon had a new majority, but those commissioners, too, knew how to deal. LeCroy and MacFaddin used Montgomery investment banker Bill Blount to swing bond business in their direction. LeCroy told MacFaddin he had reached a deal with Langford to keep Blount under control.
"I said, 'Commissioner Langford, I'll do that because that's your suggestion, but you gotta help us keep him under control," LeCroy said. "Because when you give that guy a hand, he takes your arm.' You know?"
MacFaddin laughed and agreed.
"Yeah," MacFaddin said. "You end up in the wood-chipper."
Langford said he could control Blount, LeCroy said. The important point was to keep him included and get the deal done.
In a conversation with another banker, LeCroy complained about how much Blount wanted in exchange for keeping JPMorgan on good terms with Jefferson County. Blount wanted 15 percent of all of the bank's fees.
"It's a lot of money, but in the end it's worth it on a billion-dollar deal," LeCroy said.
Blount wasn't the only connected banker getting paid. Soon, Gardnyr Michael and ABI Capital were back in the game with a new advocate on the commission — Shelia Smoot. Both firms hired a close associate of Smoot's as a "consultant." Again, it was one of those consultants who didn't really do anything.
JPMorgan sent each firm $150,000, but after the deal was cut Smoot insisted that wasn't enough. She wanted them to send more. Finally, the JPMorgan bankers agreed to pay $250,000 to each firm.
At least one associate complained to LeCroy, saying that paying people who did nothing didn't sit well with her.
"That's the deal," LeCroy said. "That's the price of doing business."
The price of doing business isn't always so direct or so expensive. Sometimes, it's even cheap. According to the lawsuit, JPMorgan paid for Commissioner Mary Buckelew to spend a day at a spa. The cost: $1,122. She also got a handbag and two pairs of shoes from Ferragamo, but those were paid for by Blount.
Larry Langford's corruption trial illustrated pretty clearly what happened at Jefferson County. The SEC's lawsuit against JPMorgan, MacFaddin and LeCroy gives a better look at how it happened. To the men on the other end of these deals, the fees they paid to commissioners' friends weren't just the cost of doing business. They were a joke.
With Langford's conviction, the indictment of CDR Financial Products and the SEC lawsuit against JPMorgan, it is clear that Jefferson County was the victim of a massive scheme. Unfortunately, little the feds have done will make Jefferson County whole.
Almost simultaneous with the lawsuit, JPMorgan settled with the SEC. (The two other defendants, LeCroy and MacFaddin, did not.) The bank has agreed to forfeit $647 million of swap termination fees that Jefferson County wasn't able to pay anyway. JPMorgan will also pay a $25 million fine to the SEC and a $50 million fine to Jefferson County.
The county is eager to spend that money, but the settlement does very little to solve the county's problems. While the interest rate swaps have attracted a lot of media attention, the debt that those swaps were built on is what's really causing Jefferson County's financial problems.
JPMorgan, along with several other major banks, suckered Jefferson County into buying auction rate securities and variable rate demand warrants. Between 2002 and 2005, the county converted nearly all of its debt to variable rate debt. In the fine print of those contracts was fine print that has now left Jefferson County with outrageous interest rates it can't pay — sometimes more than 10 percent.
That's the real crime committed against Jefferson County, and for that crime someone else needs to go to jail.
Better yet, someone needs to be put into a wood-chipper.
War on Dumb is a column about political culture. Write to email@example.com