Former JPMorgan Bankers Sued by SEC Over Swap Transactions Want Judge to Dismiss Securities Fraud Charges

Two ex- JPMorgan Chase & Co. bankers that the Securities and Exchange Commission is suing over their alleged involvement in certain swap transactions are asking the U.S. District Court for the Northern District of Alabama to throw out most of the securities fraud charges that the regulator agency has filed against them. According to the SEC, Douglas MacFaddin and Charles LeCroy paid close friends of county commissions and broker-dealers over $8 million in undisclosed payments to make sure that JPMorgan would be chosen as the bond offerings underwriter and its affiliated bank would be selected as swap provider so that both entities could make $5 billion in underwriting and interest rate swap agreement business.

The swaps involve three Jefferson County bond transactions that took place in 2002 and 2003 and are at least partly linked to the Securities Industry and Financial Markets Association’s municipal swap index. The SEC says this index is securities-based because it is derived from variable-rate demand notes. MacFaddin and LeCroy’s lawyers, however, say that the SIFMA swap index is a rate index, which therefall places the swaps outside the agency’s antifraud jurisdiction. The defendants want the case dismissed.

The ex-JPMorgan bankers’ lawyers claim the undisclosed fees were connected to the swap transactions and that the investment bank was not obligated to disclose them. The defendants’ motions argue that the SEC’s failure to cite an instance in which the two men committed securities fraud is another reason the charges should be thrown out.

To resolve SEC administrative charges over its alleged part in the alleged securities scam, J.P. Morgan Securities Inc. consented to pay $75 M and forfeit $647 M in termination fees.

Related Web Resources:
Ex-JPM Bankers Seek End to Swap Charges,, January 21, 2010
Read the SEC Complaint (PDF)

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