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Home > Blog > Countdown to Bankruptcy Decision For Jefferson County

Countdown to Bankruptcy Decision For Jefferson County

Three days and counting. That’s the time remaining before Jefferson County Commission must decide whether it will pursue more talks with creditors over a $3.2 billion sewer bond debt or opt for the largest-ever U.S. municipal bankruptcy.

The problems for Jefferson County, Alabama, date back to the 1990s, when the county began a huge upgrade of its outdated sewer system. Acting on the recommendations of consultants from JP Morgan and others, the county entered into a series of disastrous deals that involved complex and risky variable-rate investments, auction-rate debt and interest rate swaps.

The deals later backfired, and the county became stuck with huge loan payments. Meanwhile, then-Birmingham Mayor Larry Langford and a former president of the Jefferson County Commission, ex-Commissioner Chris McNair and others were convicted of rigging the transactions responsible for Jefferson County’s financial downfall.

In 2009, the Securities and Exchange Commission (SEC) charged JP Morgan Securities and two of its former managing directors – Charles LeCroy and Douglas MacFaddin – for their roles in an unlawful payment scheme that allowed them to win business involving municipal bond offerings and swap agreement transactions with Jefferson County.

As part of the settlement, J.P. Morgan agreed to forfeit $647 million of interest-rate swap termination fees, as well as pay a penalty of $25 million to the SEC and $50 million restitution to Jefferson County.

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