JP Morgan Faces Suit Over Jefferson County, Alabama Sewer Debt
An Alabama activist group is taking banking giant JPMorgan Chase, 11 other firms and prominent Jefferson County, Alabama, officials to court, charging that the deals behind a $3.2 billion sewer debt were tainted in corruption, bribery and other wrongdoings.
The Citizens for Sewer Accountability and two Jefferson County residents - Carnell Fowler and William Young - filed the lawsuit on Aug. 28, and are asking the Jefferson County Circuit Court to cancel $6.6 billion in debt and related interest-rate swaps issued by the county because the arrangements were tied to public contracts allegedly obtained through bribing one or more public officials.
The 47-page suit seeks unspecified damages.
Among the charges, the lawsuit claims that former Jefferson County Commissioner and current Mayor Larry Langford and others engaged in improper conduct concerning the county’s bond deals in 2002 and, specifically, accepted money under the table to ensure sales of interest-rate swaps - risky financing arrangements that exchange one type of interest rate for another - would happen.
The lawsuit cites similar claims against William Blount, the previous president of the Jefferson County Board of Commissioners; Albert LaPierre, a lobbyist; and investment banker Charles LeCroy.
To date, Jefferson County has paid JP Morgan and other Wall Street banks that advised the county on refinancing $3.2 billion of fixed-rate debt into variable-rate bonds some $120 million in fees and commissions - six times the prevailing rate.
Today, Jefferson County is on the verge of bankruptcy, unable to make interest rate payments that have skyrocketed into the double digits following the subprime crisis and the ongoing credit crunch.
On Sept. 5, Alabama Governor Bob Riley negotiated a deal with the county’s creditors to restructure the sewer debt at lower, fixed interest rates over a longer term. The banks have yet to respond to the proposal, but agreed that the county could postpone making interest payments until Sept. 30.
That agreement comes not a moment too soon. Lawyers for Jefferson County already were preparing the paperwork for Chapter 9 bankruptcy. If the county did declare bankruptcy, it would become the largest municipality default in the history of the United States.
Meanwhile, the sewer debacle continues to hit Jefferson County residents where it hurts the most: in their wallets. Sewer rates have increased by 329 percent since 1996 - two to three times the rate of inflation.
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