Alabama's most populous county filed suit Friday blaming Wall Street powerhouse JPMorgan Chase and others for the financial disaster that brought it to the brink of what would be the largest municipal bankruptcy in U.S. history.
The suit, filed in state court by Jefferson County, contends JPMorgan Securities Inc., JPMorgan Chase Bank, former Birmingham Mayor Larry Langford and dozens of other defendants were part of a conspiracy to generate huge fees through a series of deals called rate swaps.
The deals were supposed to help the county manage debt from a massive sewer renovation but instead generated huge fees and crippled the county's finances, according to the complaint.
"These transactions provided no value to the county or its citizens and created an inherently flawed financial structure that imploded within just a few years," said the complaint, which seeks an unspecified amount in damages.
The lawsuit also names Montgomery-based investment banker Bill Blount and lobbyist Al LaPierre, both of whom pleaded guilty to bribing Langford in deals that generated $7.1 million in fees for Blount's company, Blount Parrish & Co., which also is a defendant in the case.
The complaint parallels testimony in the recent criminal trial of Langford, who was convicted on 60 counts and removed from office. It also is similar to the federal government's civil complaint against JPMorgan Chase, which agreed to a more than $700 million settlement last week.
JPMorgan Chase issued a statement calling the county's lawsuit "meritless."
"Meanwhile, we continue to work to achieve a responsible restructuring of Jefferson County's financial affairs," it said.
Jefferson County is struggling to avoid filing what would be the largest municipal bankruptcy ever over some $3.2 billion in debt linked to deals dating back seven years. The county's interest payments skyrocketed during the global financial crisis, and it can no longer afford them.
Besides the companies and Langford, the lawsuit names two former JPMorgan Chase executives, Charles LeCroy and Douglas MacFaddin, and numerous unidentified defendants.
The suit contends JPMorgan got the county's business by making payments to Blount Parrish, which had conspired with Langford, who was president of the Jefferson County Commission at the time.
Testimony in Langford's trial showed Blount and LaPierre showered Langford with fancy clothes, checks and loan payments totaling some $236,000. Blount's firm received payments from the rate swaps in return, evidence showed.
The Securities and Exchange Commission sued LeCroy and MacFaddin last week saying the two were involved in the Jefferson County deals. Attorneys for both men denied they had violated securities laws.