BRADENTON, Fla. — A federal judge in Alabama rejected motions by two ex-JPMorgan bankers to dismiss the pay-to-play case against them involving Jefferson County, Ala.'s sewer deals and swaps.
U.S. District Judge Abdul Kallon, in a ruling Friday siding with the Securities and Exchange Commission, rejected several motions by former bankers Charles LeCroy and Douglas MacFaddin, including a request for partial summary judgment based on the contention that the court lacked jurisdiction over the interest rate swap transactions.
LeCroy and MacFaddin had also filed a request with the court seeking permission to file another motion to dismiss the case based on lack of jurisdiction due to the five-year statute of limitation. Kallon denied it.
The judge also rejected a motion by LeCroy for partial summary judgment based on the contention that at least one SEC claim against him should be barred because of the statute of limitations.
The SEC is seeking declaratory relief, a permanent injunction enjoining the defendants from violating federal securities laws, and disgorgement of profits or proceeds as a result of their conduct.
In arguing that the injunctive relief sought by the SEC should be prohibited by the five-year statute of limitations, LeCroy admitted that he was barred from working in the securities industry in 2006 by an administrative law judge.
"LeCroy relies primarily on his own self-serving declaration to support this contention, and he has consistently asserted his Fifth Amendment right at his depositions when asked about his work history and securities dealings after he left J.P. Morgan Securities," Kallon wrote.
"This court will not allow LeCroy to convert the [Fifth Amendment] privilege from the shield against compulsory self-incrimination which it was intended to be, into a sword," the judge continued, explaining that the Fifth Amendment privilege against self-incrimination "cannot be invoked to oppose discovery and then tossed aside to support a party's assertions."
On Aug. 31, LeCroy and MacFaddin filed a joint motion asking the judge for permission to reopen their depositions, withdraw their Fifth Amendment claims, and "testify as to their version of the events" at issue in the SEC's complaint.
The judge has not ruled on that motion or set a trial date.
The SEC filed suit in 2009 claiming that MacFaddin and LeCroy violated multiple securities laws as managing directors at JPMorgan.
The former bankers agreed with certain Jefferson County commissioners to pay more than $8.2 million to close friends who either owned or worked at local broker-dealers, but had no official role in selling the county's sewer bonds in 2002 and 2003, according to the SEC complaint.
The payments, undisclosed at the time, were to ensure that JPMorgan won $5 billion in underwriting and interest rate swap transaction business from Jefferson County.
The sewer deals were partly responsible for plunging Alabama's most populous county into bankruptcy in November 2011. Jefferson County emerged from Chapter 9 bankruptcy late last year but the case is being appealed.
