By Melinda Dickinson
BIRMINGHAM, Ala., May 8 (Reuters) - Jefferson County, Alabama on Friday hailed a U.S. Securities and Exchange Commission decision to file an enforcement action against JPMorgan Chase over bond swap sales to the county.
The SEC decision was disclosed by JPMorgan on Thursday.
County commissioners Jim Carns and Sheila Smoot, part of a five-person body, welcomed the decision as did Republican U.S. Representative Spencer Bachus of Alabama, the ranking member of the House Financial Services Committee.
'I am extraordinarily encouraged by the SEC approval of an enforcement action against JPMorgan Chase & Co for securities law violations over bond and swap sales for Jefferson County,' said Carns.
Smoot said the precise impact of the move was hard to gauge, adding: 'I do hope it brings us some relief.'
Jefferson County has spent more than a year fighting to stave off what would be the largest municipal bankruptcy in U.S. history over its $3.2 billion sewer debt.
The county accumulated the debt to JPMorgan and seven other creditors through interest and credit swaps earlier this decade but it has spiraled since February 2008 when ratings agencies downgraded Jefferson's insurers, prompting county bonds to plummet.
JPMorgan said late Thursday the SEC is planning to take action against the bank for alleged violations of securities rules in the sale of bond and interest swaps to Jefferson County in 2002 and 2003.
In a regulatory filing, JPMorgan said the enforcement action also alleges that it violated rules created by the Municipal Securities Rulemaking Board, the main regulator for the municipal bond market.
'The firm has been engaged in discussions with the SEC Staff in an attempt to resolve the matter prior to litigation,' said the filing.
Jefferson County is negotiating with creditors, including JPMorgan, to restructure its debt.
REVENUE PLANS THWARTED?
How far any charges affect talks depends in part on the nature of the charges, said Melissa Woodley, assistant professor of finance at Samford University in Birmingham.
'From the bargaining point of view, this cannot hurt Jefferson County's position. The fact that there are ... fraud allegations against JPMorgan should be advantageous to the county,' said Woodley.
But the county's position was hurt by the apparent failure of the state legislature to pass laws that could help raise revenue for the county, said Woodley, who follows the debt situation closely.
In particular, it could jeopardize a deal under which the county's debt would be reduced by $1.3 billion if additional revenues were raised through a sales tax.
More than one year into negotiations to stave off bankruptcy it was still 'difficult to handicap' whether the county would be successful, in part because with every passing month interest payments continue to accrue, she said.
Jefferson County had hoped that the state legislature would pass into law this week bills to levy an occupational tax and a sales tax on the county to provide revenue to run its affairs and to address the sewer debt respectively.
That revenue would also have given the county leverage in its negotiations with major creditors, who in turn were pushing for the taxes.
But the 1 cent sales tax never reached the floor of the legislature in the state capital in Montgomery, and the occupational tax went to the state Senate and is now back in the House for further consideration, Representative John Rogers said.
It looks increasingly unlikely that the state legislature will pass the bills during this session, which ends May 18, dealing a blow to the county's efforts, analysts said.
(Additional reporting by Elinor Comlay and Ciara Linnane in New York; Writing by Matthew Bigg; editing by Jim Loney, Kenneth Barry and Diane Craft) Keywords: USA ALABAMA/JEFFERSONCOUNTY (matt.bigg@thomsonreuters.com; Tel: +1 404 720-2891; Reuters Messaging: matt.bigg.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
BIRMINGHAM, Ala., May 8 (Reuters) - Jefferson County, Alabama on Friday hailed a U.S. Securities and Exchange Commission decision to file an enforcement action against JPMorgan Chase over bond swap sales to the county.
The SEC decision was disclosed by JPMorgan on Thursday.
County commissioners Jim Carns and Sheila Smoot, part of a five-person body, welcomed the decision as did Republican U.S. Representative Spencer Bachus of Alabama, the ranking member of the House Financial Services Committee.
'I am extraordinarily encouraged by the SEC approval of an enforcement action against JPMorgan Chase & Co for securities law violations over bond and swap sales for Jefferson County,' said Carns.
Smoot said the precise impact of the move was hard to gauge, adding: 'I do hope it brings us some relief.'
Jefferson County has spent more than a year fighting to stave off what would be the largest municipal bankruptcy in U.S. history over its $3.2 billion sewer debt.
The county accumulated the debt to JPMorgan and seven other creditors through interest and credit swaps earlier this decade but it has spiraled since February 2008 when ratings agencies downgraded Jefferson's insurers, prompting county bonds to plummet.
JPMorgan said late Thursday the SEC is planning to take action against the bank for alleged violations of securities rules in the sale of bond and interest swaps to Jefferson County in 2002 and 2003.
In a regulatory filing, JPMorgan said the enforcement action also alleges that it violated rules created by the Municipal Securities Rulemaking Board, the main regulator for the municipal bond market.
'The firm has been engaged in discussions with the SEC Staff in an attempt to resolve the matter prior to litigation,' said the filing.
Jefferson County is negotiating with creditors, including JPMorgan, to restructure its debt.
REVENUE PLANS THWARTED?
How far any charges affect talks depends in part on the nature of the charges, said Melissa Woodley, assistant professor of finance at Samford University in Birmingham.
'From the bargaining point of view, this cannot hurt Jefferson County's position. The fact that there are ... fraud allegations against JPMorgan should be advantageous to the county,' said Woodley.
But the county's position was hurt by the apparent failure of the state legislature to pass laws that could help raise revenue for the county, said Woodley, who follows the debt situation closely.
In particular, it could jeopardize a deal under which the county's debt would be reduced by $1.3 billion if additional revenues were raised through a sales tax.
More than one year into negotiations to stave off bankruptcy it was still 'difficult to handicap' whether the county would be successful, in part because with every passing month interest payments continue to accrue, she said.
Jefferson County had hoped that the state legislature would pass into law this week bills to levy an occupational tax and a sales tax on the county to provide revenue to run its affairs and to address the sewer debt respectively.
That revenue would also have given the county leverage in its negotiations with major creditors, who in turn were pushing for the taxes.
But the 1 cent sales tax never reached the floor of the legislature in the state capital in Montgomery, and the occupational tax went to the state Senate and is now back in the House for further consideration, Representative John Rogers said.
It looks increasingly unlikely that the state legislature will pass the bills during this session, which ends May 18, dealing a blow to the county's efforts, analysts said.
(Additional reporting by Elinor Comlay and Ciara Linnane in New York; Writing by Matthew Bigg; editing by Jim Loney, Kenneth Barry and Diane Craft) Keywords: USA ALABAMA/JEFFERSONCOUNTY (matt.bigg@thomsonreuters.com; Tel: +1 404 720-2891; Reuters Messaging: matt.bigg.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.