WASHINGTON - The Securities and Exchange Commission yesterday filed securities fraud and related charges against Birmingham Mayor Larry Langford, Alabama bond dealer William Blount and his firm Blount Parrish & Co., as well as lobbyist Albert LaPierre, over undisclosed payments Blount made to Langford in return for participation in Jefferson County lucrative municipal bond and swap deals.
The 40-page, six-count complaint, which was filed in a federal court in Birmingham, marks the commission's first enforcement action involving security-based swap agreements, in this case swaps based on muni bond indexes. According to the 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 in fees, the SEC said. The benefits included loans from a bank where Blount's girlfriend worked.
"Today's enforcement action demonstrates not only our continued commitment to the protection of investors in municipal bonds, but also our intention to vigorously pursue fraudulent conduct related to security-based swap agreements," said Linda Chatman Thomsen, the SEC's director of enforcement, in a statement.
Langford, the former head of theJefferson County Commission, helped select participants for county transactions, while Blount served as lead underwriter, co-underwriter, and remarketing agent for many Jefferson County bond offerings and served as a consultant in its swap agreements.
In the largest swap, a $1.5 billion transaction between the county and Bear, Stearns & Co. in April 2004, Blount Parrish received $2.4 million from Bear Stearns on behalf of the county. But the SEC said that payment was not disclosed publicly and was "a significantly higher amount than the fees the county paid to its legal counsel and swap and financial advisors on the transaction."
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.
But Andrew Campbell of Campbell, Gidiere, Lee, Sinclair & Williams, who is representing Blount and his firm, denied any wrongdoing by his clients and disputed that the SEC has any jurisdiction over derivatives.
"We deny all of the allegations," Campbell said. "Neither Blount nor his firm has done anything wrong and we look forward to our day in court."
Attorneys for Langford and LaPierre either declined to comment or did not return phone calls.
Earlier this year, Langford and Blount failed to convince a Florida court to squash SEC subpoenas on the grounds that the commission does not have jurisdiction over the county's interest rate swaps and derivatives. They argued 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, responded 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.