JPMorgan Settlement: Bank To Pay SEC Over $700M Over Charges Of Illegal Payments

WASHINGTON — JPMorgan Chase & Co. has agreed to pay $75 million in fines and forfeit $647 million in fees to settle federal regulators' charges that it made unlawful payments to friends of public officials to win municipal bond business in Jefferson County, Ala.

The Securities and Exchange Commission on Wednesday announced the settlement with JPMorgan.

The SEC had alleged that JPMorgan and former managing directors Charles LeCroy and Douglas MacFaddin made about $8.2 million in undisclosed payments in 2002 and 2003 to close friends of several Jefferson County commissioners. The money went to local brokerage firms whose principals or employees were friends of the county officials, the SEC said. Starting in July 2002, LeCroy and MacFaddin solicited the county for a $1.4 billion sewer bond deal.

Swayed by the payments, the county commissioners voted to select JPMorgan's securities division as managing underwriter of the bond offerings and its affiliated bank as swap provider for the transactions, the SEC said. The $5 billion in municipal bond business and interest-rate swap agreements awarded to JPMorgan was the largest such deal in its securities division's history, according to the SEC.

JPMorgan failed to disclose any of the unlawful payments or conflicts of interest in the bond offering documents, but passed on the cost of the payments by charging the county higher interest rates on the swap transactions, the SEC said.

"The transactions were complex but the scheme was simple," SEC Enforcement Director Robert Khuzami said in a statement. "Senior JPMorgan bankers made unlawful payments to win business and earn fees."

Under terms of the settlement, the Wall Street bank did not admit or deny the SEC allegations in agreeing to pay a $25 million civil fine and make a $50 million payment to the county, and to forfeit $647 million in termination fees it claims the county owes on the canceled interest-rate swap contracts worth hundreds of millions of dollars.

JPMorgan also was censured and agreed to refrain from future violations of the securities laws.

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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. The Jefferson County scandal has roiled Alabama's most populous county and last week brought the federal bribery conviction and ouster of Birmingham's mayor.

The move lowers Jefferson 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.

In a civil lawsuit filed Wednesday, the SEC also accused LeCroy and MacFaddin of securities law violations. The agency is seeking unspecified restitution from them. They plan to contest the charges.

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. 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 now-ousted Birmingham 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. On Oct. 28, Langford was found guilty in the related criminal case on 60 counts of bribery, mail fraud, wire fraud and tax evasion.

Retail investors increasingly participate in the municipal bond market, seeking safe investments with reliable returns. The financial crisis and tight credit have made it more difficult for some municipal securities deemed higher risk to be sold.

In July, the SEC proposed tightening rules governing disclosures about municipal securities to aid investors in the municipal bond market. Brokers and dealers in municipal bonds and other securities are required to make fuller and more timely disclosures to investors.

Water and sewer bills in Birmingham, Alabama are more than double the national average because of this rotten securities deal with JPMorgan. If you live in Jefferson County, let us know how these inflated bills have affected you. Email us at [e-mail].

Comments

[yourmonscalling]

and you can bet your money that not one person was sent to jail for this fraud and corruption

but a hungry person stealing food from a store goes to jail

THERE IS A STINKING RAT IN THIS COUNTRY THAT MUST BE FOUND AND THROWN AWAY

AND SOON !!!!!!!!!!­!!!!!!!!!!­!!!!

[research]

Steal an Apple, go to prison,

Still a billion, pay a fine....

[Juanx]

Maybe now the Hannitys, Becks, Limbaughs, Coulters, Boortzs will understand the necessity of separating "Banks". The subject here is Brokerage Houses merged with Banks . There has not been any regulation of either since the merger[s] There was a near collapse of both that President Obama and his Administration has been actively engaging for an immediate resolution.

All hands on deck, or we Democracts, go it for America.

[GerryS]

Huffy,

I can't believe y'all haven't changed the headline--

$75m in fines, JPM will "forgive" $647m in fees------­----------­----------­-

[NO more Bonus]

Due to Obama's inability to create an effective jobs program the only beneficiaries of this recovery is Wall Street- the same it's been since the 80's. FDP knew how to make work, but Obama doesn;t or chooses not to.

good articles; http://financeopinionss.blogspot.com
because of this he may lose in 2012.

[Rog49Thomas]

The headline is a bit misleading.

JPMC will actually pay from its pocket 10% of the amount.

The rest of the "penalty" consists of JPMC not collecting a termination fee.

The $64,000 question or perhaps that the $647 mm question is whether JPMC recognized these fees as income. If not, or if it immediately reserved against them, then the impact on JPMC will be nil.

Jefferson County though will be saved having to pay out $647mm - though it would be interesting to see how a judge in bankruptcy would treat JPMC's claim for those fees - among all the other amounts that JC owes.

Probably - and this is a guess - JPMC hasn't given anything away that it was ever reasonably sure of collecting.

[vippy]

We bash them, and rightfully so, but what I can't understand is, that we went back to voting for those very crooks who sent this country into the abyss in the first place. I understand we are fed up with Obama and him catering to the banks and putting the foxes in charge of the henhouses but why not vote for someone who truly would make a change, anyone but those of the two parties! Vote third party, does not matter who, leave them in 4 years but in the meantime our politicians would get a great wakeup call and perhaps would start to listen to their base. But I have my doubts, people are way too stupid still.

[Social Construct]

It boggles my mind as well. Of all the options for changing the damaging and dangerous relationship between government and the corporate and financial worlds, voters repeatedly deny the option of voting outside the corporate owned two party system. And they repeatedly attack those of us that do. Go figure.

[Labsaregreat]

More power to Washington!!!!

[WTxIndependent]

"Unlawful payments" is just a clean way of saying BRIBING. Just like "enhanced interrogation techniques" is a clean way of saying TORTURE.

The fines are a light penalty for this kind of corruption. JP Morgan shouldn't just be fined, they should be shut down.

[vippy]

It is all in manipulation and ergo deceiving the public! It is what it is, BRIBERY. How can anyone trust a bank who defies basic ethics? Same with the numbers the government puts out.
Our politicians sold this country down the river for a few millions and allowed the bankers to loot this country!

[StillAmused]

Just waiting for their next "We don't grant courtesy waivers" mantra, next time a on-hour-late $25 payment on one of my Chase cards incurs a $39 fee.

There ARE rules, y'understand.

[StillAmused]

"ONE-hour-late"

Whaddaya mean, 'misspelling fee'?

[MKSinSA]

"agreed to refrain from future violations of the securities laws"

Well, then, why didn't you say this earlier in the article? With such reassuring assurances, I'm convinced the SEC shouldn't be mean and take the firm's holiday bonus. After all, their word is their bond, right? And complex bribes are simply "permissible business practices." What's all the fuss?

[IGGHY]

A few million? That's like pennies for them. Bring them to prison.

[LaurenJill]

Fines? How about prison terms!!

[viflyer]

No on Wall Street EVER goes to jail.

Must be nice to be a corrporation and just do anything illegal you want and pay a portion to the Government as a FEE for doing ILLEGAL businees.

Meanwhile, you have destroyed the lives of millions of Americans. Great system we have here.

[PaleMail]

Well Madoff went to jail, but he destroyed lives of multi-millionaires not the suffering taxpayers.

[PaleMail]

Wow. $5 billion in municipal bond business and interest-rate swap agreements awarded to JPMorgan through their illegal actions. No mention here of how much this mega piece of business was reflected in boosting executive bonuses. Surely this can be determined and a request for reimbursement of the bonus money derived from this illegal action is not unreasonable.