WASHINGTON - The Securities and Exchange Commission announced this morning that it settled securities fraud and other charges with JPMorgan Securities Inc. and is pursuing charges against two of the firm’s former managing directors, Charles LeCroy and Douglas MacFaddin, in connection with muni bond and swap transactions done with Jefferson County, Ala.
JPMorgan agreed to pay a penalty of $25 million to the federal government, $50 million to Jefferson County, Ala., and to forfeit more than $647 million of claimed termination fees. The $25 million will be placed in a Fair Fund to compensate harmed investors and the county.
But LeCroy and MacFaddin refused to settle. In a complaint filed in federal court in Birmingham, the SEC said they made more than $8 million in undisclosed payments to close friends of certain Jefferson County commissioners, to ensure JPMorgan would be selected as managing underwriter of the bond offerings and its affiliated bank would be chosen as swap provider. The friends owned or worked at local dealer firms that performed no known services in the transactions.
JPMorgan did not disclose any of the payments or conflicts of interest in the swap confirmation agreements or bond offering documents, but passed the cost of the payments on to the county through higher interest rates on the swap transactions, the SEC said in a statement.
“The transactions were complex but the scheme was simple. Senior JPMorgan bankers made unlawful payments to win business and earn fees,” said Robert Khuzami, director of the SEC’s division of enforcement.
