11.05
Good ol’ local government corruption. We love to smear the Feds for being the kings of corruption, and that is true. But their small fry counterparts in local municipal governments are just as bad. Here in central Alabama it’s no different. Jefferson County has been teetering on bankruptcy for months now, and the former head of the County Commission is now in jail for a million counts of bribery. Bloomberg ran an expose on it all yesterday:
Nov. 4 (Bloomberg) — JPMorgan Chase & Co. agreed to a $722 million settlement with the U.S. Securities and Exchange Commission to end a probe into sales of derivatives that helped push Alabama’s most populous county to the brink of bankruptcy.
JPMorgan will give Jefferson County, Alabama, $50 million, pay a $25 million penalty and cancel $647 million in fees the county faced to unwind the transactions, according to an SEC news release. In addition, the agency charged two former JPMorgan employees for their roles in an “unlawful payment scheme” that allowed them to win bond and interest-rate swap business with the county.
The settlement comes a week after Larry Langford, the former president of the Jefferson County Commission and Birmingham mayor, was convicted for accepting $235,000 in designer clothes, Rolex watches and cash from an Alabama banker who JPMorgan paid almost $3 million to help arrange the swaps associated with a refinancing of the county’s sewer debt.
“It’s a good day for us,” said Jefferson County Commission President Bettye Fine Collins. “Finally, we’re seeing some movement. We have been victimized by our creditors.”
Hold on there Mrs. Bettye with an “e” on the end. The story continues:
The SEC alleged that JPMorgan, Charles LeCroy, the banker who pitched the refinancing to Jefferson County, and Douglas MacFaddin, the former head of the New York-based bank’s municipal derivatives desk, made more than $8 million in undisclosed payments to close friends of county commissioners. The associates owned or worked at local-broker dealer firms that didn’t do any work on the deals, the SEC said.
In exchange, the county commissioners voted to select JPMorgan to underwrite the floating-rate sewer bond deals and provide interest-rate swaps, which were meant to lower the county’s borrowing costs, the SEC said. JPMorgan passed along the costs of the illegal payments by charging higher interest rates on the swaps, the SEC said.
“This self-serving strategy of paying hefty secret fees to local firms with ties to county commissioners assured JPMorgan Securities the largest municipal auction rate securities and swap agreement transactions in its history,” said Glenn Gordon, associate director of the SEC’s Miami office, said in a statement.
The rest of the County Commission can try and make Langford the scapegoat if they want to, but they are all crooked. He’s no worse than the rest of them. He just happened to be too clumsy and got caught. Why the bank itself is left totally off the hook is the subject of Karl Denninger’s article about it here:
http://market-ticker.denninger.net/archives/1578-JP-Morgan-And-Alabama-Swaps.html
