BIRMINGHAM, Ala. (CN) - JPMorgan Securities will cough up or forego receipt of more than $720 million to settle an SEC complaint about the Jefferson County sewer bond fiasco that left the county on the verge of bankruptcy. Two JP Morgan executives paid more than $8 million in bribes to get the county's $5 billion bond business, according to the settled federal complaint.
JPMorgan execs Charles E. LeCroy and Douglas W. MacFaddin bribed local firms with ties to the Jefferson County Commission in 2002-03 to ensure that JPMorgan would be selected as the county's bond underwriter and swaps provider.
In taped conversations, the men acknowledged the payments were "scam transactions" and "payoffs" that were "the price of doing business," according to the SEC complaint.
After being selected as the swap provider, LeCroy and MacFaddin incorporated the payoffs into higher swap interest rates, which increased transaction costs to the county and taxpayers.
JP Morgan paid money to several local companies as well as Goldman Sachs and Rice Financial, but because these firms provided no real services, Morgan had trouble justifying the payments and used words such as "Directed Fee Payment" on invoices.
The SEC says that when an associate asked LeCroy how he could "randomly pay off people that had nothing to do with the deal" LeCroy replied, "That's the price of doing business."
Larry Langford, then-president of the Jefferson County Commission, directed the defendants to pay certain firms, including his friend Bill Blount's investment bank. Langford was convicted last week of 60 corruption charges for his involvement in the sewer deals. He faces up to 805 years in prison; Blount testified against him.
In the settlement, JPMorgan Securities does not admit it is guilty of anything, but it will pay the SEC $25 million, pay $50 million to Jefferson County, and will forfeit $647 million in swap termination fees that it claimed the county owed.
Jefferson County is on the verge of becoming the largest municipal bankruptcy in the country, with a sewer debt of $3.2 billion.
LeCroy spent 6 months in prison in 2005 after pleading guilty to two counts of wire fraud for bribes he made to get business from the city of Philadelphia, the SEC says.
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