Alabama county sues JP Morgan over sewer bond debt

By Peggy Gargis

BIRMINGHAM, Alabama (Reuters) - Alabama's Jefferson County sued JPMorgan Securities and JPMorgan Chase and Co on Friday, alleging fraud related to the accumulation of its massive sewer bond debt, a senior county official said.

JPMorgan said the county's suit was "meritless."

The county sued for compensatory and punitive damages, seeking a jury trial over what it says were fraudulent transactions tied to interest rate and bond swaps earlier this decade as it sought to upgrade its sewer system.

"We are suing for fraud because they conspired to profit with interest rate swaps to the detriment of the county," said Assistant County Attorney Charles Wagner.

"They caused us to spend more money and enter into ill-advised bond swaps for unjust enrichment of themselves. They suppressed material facts and fraudulently charged the money back to the county," he said.

Jefferson County is struggling to stave off what would be the largest municipal bankruptcy in U.S. history over a multibillion dollar sewer debt accumulated in part because of the transactions, which have triggered multiple lawsuits.

"We believe the claims are meritless and intend to defend ourselves vigorously. Meanwhile, we continue to work to achieve a responsible restructuring of Jefferson County's financial affairs," said JPMorgan spokesman Joe Evangelisti in New York.

The county also sued former Birmingham Mayor Larry Langford, lobbyist Al LaPierre and investment banker William Blount, as well as 50 unnamed parties.

The U.S. Securities and Exchange Commission earlier this month fined JPMorgan Securities $75 million and the bank agreed to forfeit $647 million in fees it was going to charge the county over the transactions.

At the same time, the SEC brought charges against two former JPMorgan Securities officials, Charles LeCroy and Douglas MacFaddin, who conducted bank business with the county over the transactions. Those officials are named in the county suit.

The county said its suit stemmed from other legal action relating to the bond swap transactions, including the SEC complaint and the conviction in federal court of Langford last month on 60 counts, including fraud and bribery.

Aside from the potential financial implications of the county's suit, it could have value in helping to restore the county's tattered reputation by holding others accountable for the accumulation of the debt.

Jefferson County's five commissioners face re-election next year.

"The county did not know and could not reasonably have known about the bribes, kickbacks and payoffs involved in these financial transactions," said the lawsuit, filed in Jefferson County circuit court.

"Had the county had knowledge of the schemes it would not have entertained the plan to restructure the county's fixed-rate debt," the lawsuit said.

(Writing by Matthew Bigg, editing by Jim Loney and Dan Grebler)