BRADENTON, Fla. - Two Birmingham, Ala., residents and a nonprofit group have filed a lawsuit asking that a judge invalidate $2.2 billion of sewer auction-rate securities issued by Jefferson County and $4.2 billion of related swaps, saying the transactions were tainted by corruption.
The 47-page suit, filed Aug. 28, asks a court to set aside the county's Series 2003B and C sewer bonds and swap transactions because they were based on public contracts that were "allegedly obtained through the bribery and corruption of one or more public officials, namely Larry Langford, then president of the Jefferson County Commission."
The suit recounts an alleged pay-to-play scheme involving Langford, who now is mayor of Birmingham, the largest city in Jefferson County, Montgomery bond dealer William Blount and his firm Blount Parrish & Co., as well as Albert LaPierre, a lobbyist and close friend of Blount and Langford.
All are charged in a securities fraud case filed by the Securities and Exchange Commission, which alleges a number of undisclosed payments between the parties related to debt transactions.
"We intend to hold Wall Street accountable for its role in the county's auction-rate bond and swaps debacle," said attorney James O'Neal from Law One Group LLC in Birmingham, who filed the complaint in Jefferson County Circuit Court on behalf of two Birmingham residents and sewer ratepayers, Carnell E. Fowler and William Young, and a nonprofit organization called Citizens for Sewer Accountability Inc.
The suit names as defendants all the Wall Street corporations involved in the county's bond deals. It seeks to nullify the bonds and swaps by using an Alabama statute entitled "Vacating charter or annulling existence of corporation." It says an action can be brought in the name of the state against an offending corporation - except a municipal corporation - that has "done or omitted any act which amounts to a surrender of its corporate rights, privileges and franchises."
"The county has been victimized by unscrupulous investment bankers and faces an unprecedented financial crisis," O'Neal said. "Hopefully, this action will help the county avoid bankruptcy and provide a way out of the current crisis."
The suit alleges that the county's sewer auction-rate bonds, Series 2003B and C, and swap transactions were the result of the bribery and corruption of Langford, and that the defendants directly benefited from the corruption, including JPMorgan as well as other investment banks and other corporations that participated in the auction-rate transactions.
JPMorgan, which was the lead banker on most of the sewer deals and is the biggest counterparty on the swaps, announced Wednesday that it would no longer participate in municipal derivatives.
In addition to Blount Parrish and JPMorgan, other defendants named in the suit are the former Bear Stearns Capital Markets Inc. - now merged with JPMorgan - Sterne, Agee & Leach Inc., Bank of America NA, CDR Financial Services Inc., Goldman Sachs Capital Markets Inc., National Bank of Commerce of Birmingham, Bank of New York, Financial Guaranty Insurance Co., Financial Security Assurance Inc., and XL Capital Assurance Inc.
The suit names as co-conspirators Parrish, LaPierre, Langford, and Charles LeCroy, who worked for JPMorgan and later as a consultant to Blount Parrish, according to the lawsuit.
The suit reserves the right to add defendants in the future.
This is the second lawsuit filed in Jefferson County in relation to the sewer bond deals.
Several Jefferson County residents have filed what they hope will eventually be a class-action suit alleging negligence, breach of fiduciary duty, breach of contract, and conspiracy to defraud, among others, against numerous officials and firms connected with the county's troubled $3.2 billion sewer debt program.
The suit seeks monetary damages sustained by plaintiffs as a result of "wrongful conduct and actions between 1993 and 2008."