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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. J.P. Morgan Securities has agreed to 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.
Robert Khuzami, Director of the SEC's Division of Enforcement said, "The transactions were complex but the scheme was simple. Senior J.P. Morgan bankers made unlawful payments to win business and earn fees."
The SEC indicated J.P. Morgan Securities and former managing directors, Charles LeCroy and Douglas MacFaddin, as having paid more than $8 million to close friends of certain Jefferson County commissioners.
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. 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.
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.
J.P. Morgan has settled the SEC's charges without admitting or denying the allegations. LeCroy and MacFaddin, however, have not agreed to settle the SEC's charges.
The company will pay $50 million to the county to assist displaced county employees, residents and sewer rate payers. It will forfeit more than $647 million in termination fees it claims the county owes under the swap transactions. The company will also pay a $25 million penalty that will be placed in a Fair Fund to compensate harmed investors and the county in the municipal bond offerings and the swap transactions.
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.
The SEC seeks judgments against LeCroy and MacFaddin providing for permanent injunctions and disgorgement with prejudgment interest.
JPM is currently trading at $42.89, up 19 cents on a volume of 25.90 million shares.
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