BRADENTON, Fla. – Two former JPMorgan bankers have agreed not to violate securities laws and to repay money they made while working on transactions that ultimately thrust Jefferson County, Ala., into bankruptcy, according to documents filed by the Securities and Exchange Commission Tuesday.
The SEC entered consent agreements that Douglas MacFaddin and Charles LeCroy approved into court records in Birmingham, along with a motion requesting that federal Judge Abdul K. Kallon approve the judgments that will end the six-year-old case.
Both men agreed, without admitting or denying charges, to injunctions against future violations of all five counts sought in the SEC lawsuit, which centers around sewer warrant transactions and swaps.
MacFaddin agreed to pay a disgorgement of $201,224, including interest.
LeCroy agreed to pay a disgorgement of $125,149, including interest.
Both men have agreed to make payments within a year.
In November 2009, the SEC filed a civil suit alleging that LeCroy and MacFaddin improperly arranged payments to local broker-dealers in Alabama to assure that certain Jefferson County commissioners would award $5 billion in county sewer bond and swap deals to JPMorgan.
The SEC suit said that the two men "privately agreed with certain county commissioners to pay more than $8.2 million in 2002 and 2003 to close friends of the commissioners who either owned or worked at local broker-dealers."
The lawsuit sought declaratory and permanent injunctions against LeCroy and MacFaddin for securities law violations, as well as disgorgement of all profits they received as a result of the violations, plus interest.
Jefferson County will receive the payments made by the bankers, according to court documents.
LeCroy was an investment banker who left JPMorgan in 2004, and MacFaddin was a managing director and head of the firm's municipal derivatives department from 2001 until March 2008.
Their attorneys couldn't be reached or declined to comment on the consent agreements.
While Tuesday’s judgments do not ban either man from working the securities industry in the future, LeCroy was barred in October 2006 after he pleaded guilty to two counts of wire fraud in a Justice Department pay-to-play and municipal corruption case in Philadelphia.
The SEC brought its suit against the bankers in 2009, around the same time it settled securities fraud charges with JPMorgan for its role in Jefferson County's sewer warrant and associated swap deals.
The SEC found that JPMorgan, which neither admitted nor denied the charges, willfully violated the Securities Act and the Municipal Securities Rulemaking Board's Rule G-17.
JPMorgan was censured and ordered to cease and desist from committing or causing any future violations.
The bank paid $50 million to the county, and forfeited more than $647 million of claimed swap termination fees.
The SEC also ordered JPMorgan to pay $1 in disgorgement and a $25 million civil penalty, which was deposited into the agency's Fair Fund. Ultimately, the funds were distributed to Jefferson County.
In addition to the cases against JPMorgan and its bankers, nearly two dozen local elected officials, contractors, and county employees involved in the county's sewer bond deals or construction of the sewer system were jailed for bribery and fraud.
In November 2011, cash-strapped Jefferson County filed for Chapter 9 bankruptcy after failing to restructure $3.2 billion of sewer warrants and associated swaps. At the time, it was the largest municipal bankruptcy in the country, although it was later eclipsed by Detroit.
The county exited bankruptcy in December 2013 after issuing $1.8 billion in sewer refunding warrants to write down $1.4 billion in related sewer debt. The case has been under appeal ever since.
