The cost of stupid corporate decisions: In its complaint, the S.E.C. accused JPMorgan Securities and two former managing directors, Charles LeCroy and Douglas MacFaddin, of making more than $8 million in undisclosed payments to close friends of certain Jefferson County commissioners. Then the county commissioners voted to select JPMorgan Securities as managing underwriter* of the bond offerings** and its affiliated bank as swap provider (keep in mind that swaps can be used to hedge certain risks) for the transactions.
See the poor decision: you advance $8 million to possibly own a contract and earn hundreds of millions... but since it's not a legal investment because the contract is awarded fraudulently JPMorgan ends up paying $75 million in penalties and $647 million in termination fees to settle civil charges. Did the big shots at the Corporation know about this?
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*The underwriter, typically an investment bank, acts as the structurer and arranger of the Bond. Who is one of the defendants? Larry Langford, found guilty of taking about $236,000 in cash and gifts from Montgomery investment banker Bill Blount and lobbyist Al LaPierre. **Basically a government bond is a loan: the issuer in this case is Jefferson County (the borrower and debtor), and the holder or lender (creditor) is whoever buys the bonds, while the coupon is the interest. Bonds provide the city with external funds to finance long-term investments, or to finance current expenditure.
