Ex-JPMorgan Bankers Want SEC Case Dismissed

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BRADENTON, Fla. — Two former JPMorgan bankers have asked a federal judge to dismiss federal pay-to-play charges connected to sewer deals that helped push Jefferson County, Ala., into bankruptcy.

The record supports ending the four-count securities fraud case filed in 2009 by the Securities and Exchange, Charles LeCroy and Douglas MacFaddin said in a motion for summary judgment Friday.

Trial is set for July 14.

The men are charged with making more than $8 million in undisclosed payments to broker-dealers — some close friends of county commissioners — to help JPMorgan become underwriter and swap counterparty on Jefferson County's sewer deals. The fees allegedly went to firms that did no work on three swaps in 2002 and 2003 that were based on International Swaps and Derivatives Association agreements between the county and the bank.

JPMorgan gave the county proper notice of the payments in question through the ISDA agreements, which the county authorized in various resolutions, said LeCroy and MacFaddin.

"It is indisputable that the county received proper notice of the payments at issue," they said.

The former bankers also argued that there is no actionable disclosure omission concerning two of the swaps because they were authorized when CDR Financial Products Inc. was the county's swap advisor. CDR knew about the payments as the county's agent, their motion said.

The SEC has said that conflicts of interest should have been disclosed to prospective investors in bond documents because the agreements to make payments were with certain county commissioners — and not the full commission — to ensure that JPMorgan won the county's business.

LeCroy and MacFaddin said the case also should be dismissed on that point because the record does not show that they knew about any commissioner who received a financial benefit from the payments.

They said the only pecuniary benefit went to former commission President Larry Langford, who orchestrated the sale of the county's $3.2 billion in sewer warrant deals and swaps, including those at the heart of the SEC's case.

In 2009, Langford was convicted on 61 counts of bribery, money laundering, mail and wire fraud, conspiracy, and filing a false tax return. He is serving a 15-year prison sentence. The sewer deals eventually collapsed and were a major reason Jefferson County filed for bankruptcy in 2011.

The ex-banker's motion to dismiss the SEC case also said that MacFaddin "had no relationship or communication with any warrant purchasers or the county" that required him to disclose anything about the warrants or swaps.

MacFaddin, head of JPMorgan's municipal derivatives department from 2001 until March 2008, was not involved in the actual distribution of securities, which is required by legal precedent to press disclosure charges, the motion said.

LeCroy was managing director of the bank's Southeast regional office, and left the firm in 2004.

On Friday, the Securities and Exchange Commission filed a motion for summary judgment seeking a favorable ruling on all four counts of its suit before U.S. District Judge Abdul Kallon in Birmingham.

The commission said that its case proves the former bankers violated the securities act by failing to disclose the payments to all five members of the County Commission, whose vote was required to approve the payments. Only certain commissioners knew about or approved the swaps, documents have said.

LeCroy and MacFaddin also failed to disclose information about payments that would have been material to bond investors, said the SEC.

"Any reasonable investor would have wanted to know that bonds in which he or she was investing were being offered by an underwriter who had procured the county's business through a corrupt process of paying off friends and associates of [county] commissioners," said the SEC's motion.

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