ENFORCEMENT PROCEEDINGS - In the Matter of J.P. Morgan Securities Inc.

On Nov. 4, 2009, the Securities and Exchange Commission issued an Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933 (Securities Act), and Sections 15(b) and 21C of the Securities Exchange Act of 1934 (Exchange Act), Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order against J.P. Morgan Securities, Inc. The Order finds that J.P. Morgan Securities violated 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 (MSRB) Rule G-17, in connection with an unlawful payment scheme which allowed them to obtain $5 billion in Jefferson County, Alabama municipal bond offerings and swap agreement transactions.

The Order finds that between October 2002 and November 2003, J.P. Morgan Securities, through its former managing directors Charles LeCroy and Douglas MacFaddin, made over $8 million in payments to close friends of Jefferson County commissioners who either owned or worked at local broker-dealers. These broker-dealers had no official role and performed few, if any, services on the transactions. In connection with these payments, the County commissioners voted to select J.P. Morgan Securities as managing underwriter and its affiliated bank as swap provider for the largest municipal auction rate securities and swap agreement transactions in the firm's history.

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)

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