BRADENTON, Fla. – A federal judge in Alabama has closed the final lawsuit directly related to the massive sewer debacle that pushed Jefferson County into bankruptcy.
In rulings filed Friday, U.S. District Judge Abdul K. Kallon entered judgments ending the six-year-old case brought by the Securities and Exchange Commission against former JPMorgan bankers Douglas MacFaddin and Charles LeCroy.
Both men were charged with violating securities laws for improperly arranging $8.2 million in payments to local broker-dealers in Alabama to assure that certain Jefferson County commissioners would award $5 billion in county sewer bond and swap deals to JPMorgan in 2002 and 2003.
The rulings end a dark chapter in the history of Alabama's largest county, said County Commission President Jimmie Stephens.
"It has been a long and arduous ordeal for Jefferson County," Stephens said, adding that he does not believe there are any remaining lawsuits against individuals involved in the sewer deals.
The county continues to fight an appeal of its bankruptcy case.
Kallon issued injunctions banning MacFaddin and LeCroy from committing future violations related to the five counts in the complaint, which stem from SEC and Municipal Securities Rulemaking Board regulations.
MacFaddin was ordered to pay a disgorgement of $201,224, including interest, and LeCroy will pay a disgorgement of $125,149, including interest.
Both men agreed to the settlements without admitting or denying guilt. Their attorneys did not immediately respond to requests for comment.
While the judgments do not ban either man from working the securities industry in the future, LeCroy was barred in October 2006 after he pleaded guilty to two counts of wire fraud in a Justice Department pay-to-play and municipal corruption case in Philadelphia.
LeCroy was an investment banker; he left JPMorgan in 2004. MacFaddin was a managing director and head of the firm's municipal derivatives department from 2001 until March 2008.
The terms of their settlements were negotiated in mediation talks in June, about a month before trial was set to begin in the 2009 case.
The former bankers are among dozens who have faced litigation for improprieties related to the construction or financing of the county's sewer system.
MacFaddin and LeCroy have a year to make their respective payments to the SEC, which is expected to be funneled to Jefferson County, according to court documents.
"I'm very happy that this judgement concludes the final chapter in JPMorgan's involvement in Jefferson County's sewer system financial crisis," said county commissioner David Carrington, who was the board's president as most of the SEC suit proceeded.
Carrington also said that the county welcomed the additional funds as a result of the settlements.
"The county's Chapter 9 Plan of Adjustment was not dependent on any settlement, but the $326,373 will be another positive deposit into our sewer capital improvements account," he said. "I should note, though, that our sewer revenues are higher than projected, our sewer expenses are less than expected, and our capital improvement plan is cost effectively proceeding."
SEC regional trial attorney Robert K. Levenson said Monday that the agency is happy with Kallon's ruling.
"We believe it was a favorable settlement for the commission or we would not have recommended it for approval," he said.
Jefferson County filed for bankruptcy in November 2011 after failing to restructure $3.2 billion of sewer warrants and associated swaps. At the time, it was the largest municipal bankruptcy in the country; it was later eclipsed by Detroit.
The county exited bankruptcy in December 2013 after issuing $1.8 billion in sewer refunding warrants to write down $1.4 billion in related sewer debt. The case has been under appeal ever since.
"Post-bankruptcy Jefferson County is now stronger than ever," Stephens said Monday. "We are executing our plan of adjustment."
The county is currently asking a court to validate its first bond issue since emerging from bankruptcy, although that case is also being challenged.
The plan is to refund up to $595.5 million of limited obligation warrants backed by a dedicated one-cent sales tax. Stephens said the county hopes to bring the issue to market during the first half of 2016.
