BRADENTON, Fla. - Less than a month before the start of trial, a federal judge in Alabama ordered mediation in the Securities and Exchange Commission's suit against two ex-JPMorgan bankers involved in Jefferson County sewer deals.
U.S. District Court Judge Abdul Kallon cancelled the July 14 trial date for Charles LeCroy and Douglas MacFaddin and rescheduled it for Jan. 25 at the federal courthouse in Birmingham.
"This case is appropriate for mediation," Kallon said in a four-page order on June 22. "Counsel and the parties shall endeavor in good faith to resolve the case through mediation."
In the civil suit filed in 2009, the SEC alleged that LeCroy and MacFaddin improperly arranged payments to local broker-dealers to assure that certain Jefferson County commissioners would award $5 billion in county sewer bond and swap deals to JPMorgan.
The payments were not properly disclosed to the "county and investors, in swap confirmations, bond official statements, and other documents," the SEC said.
MacFaddin, former head of JPMorgan's municipal derivatives department, and LeCroy, former managing director of the bank's Southeast regional office, said they had no duty to disclose the payments.
Court-ordered mediation is becoming more common, and some parties prefer it to avoid airing all the details of their disputes, according to an attorney who spoke on background about court procedure.
In LeCroy's and MacFaddin's case, a number of pre-trial motions had been filed, some under seal.
Mediation will also take the federal civil case out of public view for "mandatory but non-binding settlement" proceedings, which are private, confidential and privileged, Kallon's order said.
The sides must agree on a mediator by Sept. 1, and complete mediation proceedings by Oct. 31.
In recent months, both sides have attempted to exclude certain witnesses and evidence at trial, according to the motions that are available for public review.
LeCroy and MacFaddin filed a motion asking the judge to prevent the SEC from arguing its case differently than the commission argued in its case against former Jefferson County Commission President Larry Langford.
The SEC argued that Langford unilaterally approved side payments to certain local broker-dealers and that he was the only commissioner to receive disclosure documents from JPMorgan about the payments, according to attorneys for LeCroy and MacFaddin.
"The SEC now strenuously contends that JPMorgan's disclosure letters did not constitute adequate disclosure to the county because LeCroy and MacFaddin sent them only to the commissioner who mandated the improper payments," the attorneys said. "That position is squarely inconsistent with the position that the SEC took in the Langford complaint."
In a pre-trial motion filed by the SEC, the commission asked the court to exclude documents and testimony involving JPMorgan attorneys in drafting and reviewing documents in the case on behalf of LeCroy and MacFaddin.
The SEC said allowing evidence at trial produced by JPMorgan attorneys would be unfair and prejudicial because during the discovery phase "their former employer, JP Morgan, repeatedly asserted the attorney-client privilege over all communications involving LeCroy, MacFaddin, and JPMorgan lawyers."
Kallon has not ruled on any pre-trial motions.
The pay-to-play case against LeCroy and MacFaddin centers mostly on $3.2 billion in sewer warrants and related swaps sold in 2002 and 2003.
The deals pushed Jefferson County into bankruptcy in November 2011. The county emerged from its Chapter 9 case two years later, though its exit plan is being appealed.
