According to the SEC's complaint, although labeled as payments for work on the transactions, LeCroy and MacFaddin knew that these were sham transactions designed to ensure that County officials selected J.P. Morgan Securities. LeCroy and MacFaddin referred to the payments in taped telephone conversations as "payoffs," "the price of doing business" or "giving away free money." J.P. Morgan Securities incorporated the costs of these unlawful payments by charging Jefferson County higher interest rates on the swap transactions.

The SEC further alleges that LeCroy and MacFaddin failed to disclose any of these payments, and the inherent conflicts of interest raised by the payments, either to the County or investors in bond offerings, or to the County in the swap agreements at issue. This conduct deprived Jefferson County and its investors of objective and impartial bond underwriting processes and swap agreement negotiations.

The SEC's complaint charges LeCroy and MacFaddin with violations of Section 17(a) of the Securities Act of 1933, Sections 10(b) and 15B(c)(1) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder, and Municipal Securities Rulemaking Board Rules G-17 and G-20. The SEC's complaint seeks judgments against each defendant providing for permanent injunctions and disgorgement with prejudgment interest.

In April 2008, the SEC filed a civil action in the U.S. District Court for the Northern District of Alabama against Birmingham, Alabama Mayor Larry Langford (the former president of the Jefferson County commission); William B. Blount, chairman of Blount Parrish & Co, Inc., a broker-dealer based in Montgomery, Alabama; and registered lobbyist Albert LaPierre. The SEC's complaint alleged that while Langford served as president of the County Commission, he accepted more than $156,000 in undisclosed cash and benefits over the course of two years from Blount in exchange for Blount Parrish participating in every Jefferson County municipal bond offering and security-based swap agreement transaction during 2003 and 2004. Securities and Exchange Commission v. Larry P. Langford, William B. Blount, Blount Parrish & Co., Inc., and Albert W. LaPierre, Case No. Case No. cv-08-B-0761-S (N.D. Ala., filed April 30, 2008). This case was the SEC's first enforcement action involving security-based swap agreements.

On December 1, 2008, the United States Attorney for the Northern District of Alabama filed criminal charges against Langford, Blount and LaPierre. The 101-count indictment charged Langford, Blount, and LaPierre with, among other charges, conspiracy, bribery, and money laundering in an alleged long-running bribery scheme related to Jefferson County bond transactions and swap agreements. United States of America v. Larry P. Langford, William B. Blount, and Albert W. LaPierre, (United States District Court for the Northern District of Alabama, Case No. 2:08-CR-00245-LSC-PWG). On July 30, 2009, LaPierre pled guilty to the charges of conspiracy and filing a false tax return, and agreed to forfeit $371,932 and pay back taxes. On August 18, 2009, Blount pled guilty to conspiracy and bribery and agreed to forfeit $1,000,000. On October 28, 2009, Langford was found guilty on 60 counts of bribery, mail fraud, wire fraud and tax evasion. All three currently await sentencing.

For further information see Litigation Release Nos. 20400 (Dec. 17, 2007), 20545 (April 30, 2008), 20821 (Dec. 5, 2008). [SEC v. Charles E. LeCroy, and Douglas W. MacFaddin, Case No. cv-09 U/B 2238-S (N.D. Ala.)] (LR-21280)

The Order further finds that J.P. Morgan Securities failed to disclose any of these payments, and the inherent conflicts of interest raised by the payments, either to the County or investors in bond offerings, or to the County in the swap agreements at issue. This conduct deprived Jefferson County and its investors of objective and impartial bond underwriting processes and swap agreement negotiations. Moreover, J.P. Morgan Securities incorporated the costs of these unlawful payments by charging Jefferson County higher interest rates on the swap transactions.

Based on the above, the Order censures J.P. Morgan Securities, requires it to cease and desist from committing or causing any violation or any future violation of Sections 17(a)(2) and 17(a)(3) of the Securities Act, Section 15B(c)(1) of the Exchange Act and Municipal Securities Rulemaking Board Rule G-17, and further orders J.P. Morgan Securities to pay a $25 million civil penalty. J.P. Morgan Securities consented to the Order without admitting or denying any of findings except subject matter and personal jurisdiction. In accepting J.P. Morgan's offer of settlement, the SEC considered J.P. Morgan's undertakings to: (1) make a $50 million payment to and for the benefit of Jefferson County; and (2) to terminate any and all obligations of Jefferson County to make over $647 million in payments its affiliated bank claimed the County owed under the swap agreements. (Rels. 33-9078; 34-60928; 33-9079; 33-9080; 34-60929; File No. 3-13673)

- Administrative Proceeding Against J.P. Morgan Securities

- Litigation Release No. 21280

- SEC Complaint Against LeCroy and MacFaddin

J.P. Morgan Securities settled the SEC's charges and will pay a penalty of $25 million, make a payment of $50 million to Jefferson County, and forfeit more than $647 million in claimed termination fees.

The SEC alleges that J.P. Morgan Securities and former managing directors Charles LeCroy and Douglas MacFaddin made more than $8 million in undisclosed payments to close friends of certain Jefferson County commissioners. The friends owned or worked at local broker-dealer firms that performed no known services on the transactions. In connection with the payments, the county commissioners voted to select J.P. Morgan Securities as managing underwriter of the bond offerings and its affiliated bank as swap provider for the transactions.

J.P. Morgan Securities did not disclose any of the payments or conflicts of interest in the swap confirmation agreements or bond offering documents, yet passed on the cost of the unlawful payments by charging the county higher interest rates on the swap transactions.

"The transactions were complex but the scheme was simple. Senior J.P. Morgan bankers made unlawful payments to win business and earn fees," said Robert Khuzami, Director of the SEC's Division of Enforcement.

Glenn S. Gordon, Associate Director of the SEC's Miami Regional Office, added, "This self-serving strategy of paying hefty secret fees to local firms with ties to county commissioners assured J.P. Morgan Securities the largest municipal auction rate securities and swap agreement transactions in its history."

The SEC previously charged Birmingham Mayor Larry Langford and two others for undisclosed payments to Langford related to municipal bond offerings and swap agreement transactions that he directed on behalf of Jefferson County while serving as president of the County Commission. On Oct. 28, 2009, Langford was found guilty in a parallel criminal case on 60 counts of bribery, mail fraud, wire fraud and tax evasion. He currently awaits sentencing.

According to the SEC's complaint filed against LeCroy and McFaddin in U.S. District Court for the Northern District of Alabama, the two former managing directors demonstrated in taped telephone conversations that they knew the payments to local firms with ties to county commissioners were designed to obtain business for J.P. Morgan's broker-dealer and affiliated bank. LeCroy and MacFaddin referred to the payments as "payoffs," "giving away free money," and "the price of doing business."

The SEC alleges that the scheme began in July 2002, when LeCroy and MacFaddin solicited Jefferson County on behalf of J.P. Morgan Securities for a $1.4 billion sewer bond deal. LeCroy and MacFaddin knew several county commissioners wanted to complete the transaction before November, when two commissioners would leave office and lose their ability to funnel payments to their supporters' firms. LeCroy later boasted to MacFaddin in a taped telephone conversation about his efforts to persuade the two commissioners to select J.P. Morgan Securities for the deal, beating out a rival firm. LeCroy told MacFaddin that he said to the commissioners, "Whatever you want - if that's what you need, that's what you get - just tell us how much."

J.P. Morgan Securities agreed to settle the SEC's charges without admitting or denying the allegations by paying $50 million to the county for the purpose of assisting displaced county employees, residents and sewer rate payers; forfeiting more than $647 million in termination fees it claims the county owes under the swap transactions; and paying a $25 million penalty that will be placed in a Fair Fund to compensate harmed investors and the county in the municipal bond offerings and the swap transactions. LeCroy and MacFaddin have not agreed to settle the SEC's charges.

The SEC's order instituting settled administrative proceedings against J.P. Morgan Securities finds that it violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933, Section 15B(c)(1) of the Securities Exchange Act of 1934 and Municipal Securities Rulemaking Board (MSRB) Rule G-17. In addition to the monetary relief described above, the SEC's order censures J.P. Morgan Securities and directs it to cease-and-desist from committing or causing any further violations of the provisions charged.

The SEC charged LeCroy and MacFaddin with violations of Section 17(a) of the Securities Act, Sections 10(b) and 15B(c)(1) of the Exchange Act, and Rule 10b-5 thereunder, and violations of MSRB Rules G-17 and G-20. The SEC's complaint seeks judgments against LeCroy and MacFaddin providing for permanent injunctions and disgorgement with prejudgment interest.

CONTACT: Glenn S. Gordon, Associate Regional Director, SEC's Miami Regional Office, Us Sec Tel: +1 305 982 6360 Robert Levenson, Regional Trial Counsel, SEC's Miami Regional Office, Us Sec Tel: 305 982 6341 WWW: http://www.sec.gov/news/press/2009/2009-232.htm

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