BRADENTON, Fla. - Attorneys on both sides of a pay-to-play case stemming from Jefferson County, Ala.'s sewer deals told a federal judge in recent filings that the other side's motion for summary judgment should not be granted.
U.S. District Judge Abdul K. Kallon in Birmingham is scheduled to begin trial July 14 in the case brought by the Securities and Exchange Commission in 2009 against two ex-JPMorgan bankers.
Both sides have submitted motions for partial summary judgment.
In court filings March 9, attorneys criticized each other's legal theories about whether the former bankers funneled illegal payments to third parties that did no work on Jefferson County's sewer bond transactions and related swaps in order to win JPMorgan work on the deals.
"With inflammatory language and little else, the SEC attempts to lump this case - in which a non-fiduciary swap counterparty shared economics with third parties who were not fiduciaries either, pursuant to a long-standing and well-known county practice of encouraging participation by local and minority firms in county deals - with 'pay-to-play' cases involving bribes and kickbacks to issuer officials," wrote attorneys for Charles LeCroy and Douglas MacFaddin.
MacFaddin, former head of JPMorgan's municipal derivatives department, and LeCroy, former managing director of the bank's Southeast regional office, said they had no duty to disclose the payments. They said the judge should not agree with the motion for judgment in the SEC's favor.
The SEC said the bankers "use arcane and baseless legal theories to attempt to create a technical loophole for their fraudulent activity."
Securities laws are well settled, and support the government's case, SEC attorneys said, asking the judge not to support the bankers' motion for dismissal.
LeCroy and MacFaddin claimed that the SEC failed to establish "any statute, rule, regulation or case law that bars a non-fiduciary swap counterparty from paying third parties who are not fiduciaries of a municipality, whether or not those third parties do any work."
The swap agreements between the county and JP Morgan "did not give the defendants license to violate the securities laws," SEC attorneys argued.
"JP Morgan, and by extension defendants Charles LeCroy and Douglas MacFaddin, could not by contract agree to pay off local firms who were friends of county commissioners for no work in order to line their pockets with billions of dollars of county swap and bond business without disclosing that fact to county commissioners and bond investors," the SEC's filing said.
The former bankers called the SEC's argument that securities laws impose a fiduciary relationship on parties to a swap transaction baseless.
The SEC, however, said MacFaddin and LeCroy undertook deceptive acts in Jefferson County's 2002 and 2003 sewer bond and swap deals "that constituted a fraudulent scheme and operated as a course of conduct that defrauded the county and investors."
The latest arguments are among the final steps in preparation for trial. Both sides have until March 27 to respond to the latest filings.
