Birmingham Mayor, Two Others File Motion to Dismiss SEC Fraud Charges

Attorneys for three Alabama individuals, including Birmingham Mayor Larry Langford, last week filed a motion to dismiss Securities and Exchange Commission fraud charges on the grounds that it has no jurisdiction over security-based swap agreements such as the ones that the defendants participated in with Jefferson County, Ala.

The motion, filed with the U.S. District Court of Alabama on June 30, essentially uses the same argument made in January when Langford and broker-dealer William Blountargued against testifying in an SEC investigation of the county's swaps and derivatives in a federal court in Florida, arguing that the SEC does not have jurisdiction over derivatives because they are not securities.

Robert K. Levenson, an attorney with the SEC, said in an e-mail that the commission does "not think the motion has merit" and that they will be filing a detailed response as to why "in the near future."

Blount's firm, Blount Parrish & Co., as well as lobbyist Albert LaPierre, also face SEC fraud charges over undisclosed payments that Blount made to Langford in return for participation in Jefferson County's lucrative municipal bond and swap deals.

Blount and LaPierre argued in January that some of the swaps are tied to the London Interbank Offered Rate, and are therefore considered non-securities.

But the SEC, in seeking to depose both men last year, said that many of the county's swap agreements were in fact based on the value of The Bond Market Association's municipal swap index, not Libor, and were therefore "security-based."

"The mere fact that the county made the agreements simultaneously with its bond offerings and approved them in the same resolutions as the bond deals raises questions about whether they were security-based swap agreements falling under our jurisdiction," the SEC argued in January while it was investigating Blount and Langford. TBMA merged with another industry group in 2006 to form the Securities Industry and Financial Markets Association.

Langford and Blount failed to convince the Florida court to squash the SEC subpoenas.

The commission's charges filed in a federal court in Birmingham April 30 marked its first enforcement action involving security-based swap agreements, in this case swaps based on muni bond indexes. According to the SEC complaint, Langford selected Blount Parrish to participate in every Jefferson County muni bond offering and security-based swap agreement transaction during 2003 and 2004 in return for payments made to Langford via LaPierre, a long-time friend of both men.

Langford, who was in financial distress at the time, accepted more than $156,000 in undisclosed cash and benefits over the course of two years from Blount and his firm in return for putting Blount Parrish in the deals and allowing it to earn $6.7 million of fees, the SEC said. The benefits included loans from a bank where Blount's girlfriend worked.

Specifically, the commission charged Langford, Blount, and Blount Parrish with three counts of securities fraud and allege that Blount and his firm violated the Municipal Securities Rulemaking Board's Rule G-17 on fair dealing and Rule G-20 on gifts, gratuities, and non-cash compensation. The SEC also charged LaPierre with one count of aiding and abetting Blount and Blount Parrish's alleged violations of antifraud rules.

Andrew Campbell of Campbell, Gidiere, Lee, Sinclair & Williams, who is representing Blount and his firm, in May denied any wrongdoing by his clients and disputed that the SEC has any jurisdiction over derivatives.

"We deny all of the allegations," Campbell said then. "Neither Blount nor his firm has done anything wrong and we look forward to our day in court."

Campbell could not be reached for comment on Thursday. Attorneys for Langford did not return phone calls and LaPierre's attorneys offices were closed Thursday ahead of the July 4 holiday.

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