WASHINGTON - Two former JPMorgan officials are facing new allegations in Justice Department and Securities and Exchange Commission criminal and civil investigations of anti-competitive practices in municipal market derivatives and investments, according to regulatory filings.
The Justice Department and SEC investigations of alleged bid-rigging, price-fixing and other practices that violate antitrust laws, have been ongoing since at least the fall of 2006 and involve dozens of banks, investment banks, advisory firms and individuals.
The probes became public when the Federal Bureau of Investigation in November 2006 raided three investment advisory firms: CDR Financial Products in Beverly Hills, Calif., Investment Management Advisory Group Inc. in Pottstown, Pa., and Sound Capital Management in Eden Prairie, Minn. A few months later, Bank of America NA entered into an amnesty agreement with the Justice Department, under which it was granted amnesty from criminal charges in return for full cooperation in the investigation.
The new disclosures relating to the two former JPMorgan officials are the latest that have been made in recent weeks with regard to these investigations.
Douglas MacFaddin, former head of cash derivatives and sales and marketing at JPMorgan, was fired from the firm on March 11, after his lawyers notified JPMorgan that he had received a letter from the Justice Department stating that he is the target of a grand jury investigation, according to a recently updated regulatory filing with the Financial Industry Regulatory Authority.
The firm had been contacted by the Justice Department on Dec. 1 about conduct on its municipal derivatives marketing desk. MacFaddin is not currently registered with any other FINRA firm, according to the filing. James Lansing, a managing director in the municipal capital markets group, has replaced MacFaddin, a spokesman at the firm said.
In addition, Samuel M. Gruer, a former vice president in derivatives marketing for JPMorgan, recently disclosed in a FINRA filing that he was notified by the SEC on March 18 that the staff is considering filing charges against him "in connection with the bidding of various financial instruments associated with municipal securities."
Gruer, who had been notified by the Justice Department on Nov. 30 that he was a target of the grand jury investigation "concerning antitrust and other violations involving contracts related to municipal bonds," left JPMorgan in June 2006 and is currently a director of muni structuring, which includes derivatives, at Deutsche Bank AG. He has denied any wrongdoing in both the Justice and SEC investigations.
These new disclosures show that at least four former officials derivatives marketing at JPMorgan either have been told they are targets of the grand jury investigation or have been contracted in connection with the investigation.
The other two individuals are James L. Hertz, a former JPMorgan vice president in derivatives marketing who was fired from the firm on Dec. 12 after he was notified on Dec. 1 that he was a target of the grand jury investigation, and Shlomi Raz, a banker at Goldman, Sachs & Co., who formerly worked at JPMorgan and disclosed several weeks ago that he was contacted by the Justice Department on Dec. 1 regarding the "grand jury investigation concerning possible antitrust and other violations involving contracts related to municipal bonds."
Hertz is the first of the four to disclose he appears to be a target of the SEC probe.
The Justice probe has also touched at least one employee of Bear, Stearns & Co., which is to be purchased by JPMorgan - Stephen Salvadore, a senior managing director and manager of municipal capital markets derivatives and investments at Bear, who received notice on Jan. 8 that he is a target of the grand jury investigation, according to a FINRA filing.
Meanwhile, Genworth Financial Inc., stated in a 10-Q financial statement that it filed with the SEC yesterday that it had reported in November 2006 that one of its subsidiaries had received subpoenas from Justice's antitrust division grand jury and the SEC in connection with these investigations.
The company also noted it has been named, along with other firms, in three class action suits alleging federal antitrust violations involving the sale of guaranteed investment contracts and seeking treble damages.
"We cannot ensure that the previously identified investigations and proceedings will not have a material adverse effect on our business, financial condition, or results of operation," the company said in the filing.