SEC investigates JPMorgan over Jefferson County deals

Posted May 10th 2009 9:40AM by Connie Madon
Filed under: JPMorgan Chase (JPM), Politics, Financial Crisis

Imagine that you're in Jefferson County Alabama, reading the local paper. You see an article that says that Jefferson County is one of the most indebted municipalities in the U.S. So you read a little further and find that there are layers of payments made to local officials, including the mayor, Larry Langford, who received more than $156,000 in cash from a broker hired to arrange bond offerings and swap agreements on the behalf of Jefferson County. You keep reading and discover that the financing was for a $3 billion sewage system.

The financing was secured from various banks, among them JPMorgan Chase & Co. (NYSE JPM). Everything went along fine until the financial crisis hit the bond market. Bond ratings were driven down, forcing lenders to curtail credit for Jefferson County. The county came under pressure and couldn't make their payments on time. Deadlines came and went, and Jefferson County is now ready to blow up. If it does, it will be the largest municipal default in the nation, making Orange County California's problem look like a spec of sand.

Now enter the SEC, which is investigating not only Jefferson County's flim-flams, but also the banks that lent money to them, including JPMorgan. JPMorgan has known about the investigation since April 21 but has only disclosed the matters this week.

Keep an eye on this one because a large municipal default could cause ripples throughout the municipal bond market.

Tags: Alabama, Jefferson County, JPM, JPMorgan, Larry Langford, SEC