JP Morgan Settles for Pennies on Jefferson County Derivatives Scam, County Still Bankrupt

Wednesday, November 04, 2009 , , 2 Comments

If you look at this from the perspective of JP Morgan, a few million is nothing. Imagine they do this in 50 different counties around the country and only get caught once or twice, that's a paltry $50 million plus some fees they would have never collected from the municipalities they bankrupted anyway. I'd say that's a win for their business model, though perhaps not for our broken and battered financial system. Oh well, who cares as long as JPM is making their money?

There is no liquidity problem until the great wealth transfer runs out of victims, I guess.


J.P. Morgan Securities Inc. and two of its former managing directors on Wednesday settled charges with the U.S. Securities and Exchange Commission for their roles in an unlawful payment scheme that enabled them to win business involving municipal-bond offerings and swap-agreement transactions with Jefferson County, Ala.

J.P. Morgan Securities, a unit of J.P. Morgan Chase & Co., 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 announced.

The settlement comes as the SEC is examining several municipal investment contracts. Jefferson County has faced credit-rating downgrades and possible bankruptcy after its investments in over-the-counter derivatives.

J.P. Morgan said in a statement that the company is pleased to have settled the Jefferson County matter.

"The charges relate principally to municipal derivatives transactions that occurred six and seven years ago," the statement said. "J.P. Morgan has since discontinued that business, and the employees in question are no longer employed by the firm. The settlement does not impair any outstanding Jefferson County bonds and J.P. Morgan continues to work to achieve a responsible restructuring of Jefferson County's financial affairs."

The SEC alleged 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.

Ironically, or perhaps not that ironically at all, Jr Deputy Accountant shared the story of Jefferson County's fiscal woes just a few days ago:

These days, Bettye Fine Collins doesn’t talk like a power politician. “It’s not easy being me,” she complains. It’s not hard to understand why. As president of the County Commission in Jefferson County, Alabama, she’s the top elected official in one of the nation’s most financially troubled jurisdictions. The county of 660,000, anchored by Birmingham, has teetered on the brink of bankruptcy since April 2008. That’s when Jefferson County ceased making payments to creditors holding bonds that paid for its sewer system. “It’s a long, terrible situation,” Collins says. “I don’t think there’s another situation in this country that would compare.”

[W]hy was Jefferson County redoing its website in July (that's not cheap) when it hasn't even paid its sewer bills? Responsible lending, Regions, srsly. Oddly enough, the largest item on Jefferson County's FY 2010 budget is the "Environmental Services Fund", where "Environmental Services" covers their sewer system... that hasn't been paid for in 16 months. A $265,634,864 item would certainly catch anyone's eye with nearly every other item in the single millions. With an m, we're talking state not federal.

Maybe that $265,634,864 was just a JP Morgan "convenience" fee.

Anyway. More bloody gloves. Count 'em, kids.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.


beebs said...


A turnaround is baked into the cake. What happens if the Pelosi-Obama-Reid economy doesn't recover soon, and "they" have to cut some more meat from the bone?


then I guess you better hope it isn't *your* arm they are holding when they make that decision.