Washington, D.C., April 30, 2008 (Lawfuel) – The Securities and Exchange Commission today charged Birmingham Mayor Larry Langford and two of his friends in connection with undisclosed payments to Langford related to municipal bond offerings and swap agreement transactions Langford directed on behalf of Jefferson County, Ala. Also charged was the Alabama broker-dealer firm that reaped millions of dollars in fees from the deals.
The SEC alleges that while Langford served as president of the County Commission of Jefferson County, he accepted more than $156,000 in undisclosed cash and benefits over the course of two years from William Blount, the chairman of Blount Parrish & Co, Inc.
Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement, said, “Today’s enforcement action demonstrates not only our continued commitment to the protection of investors in municipal bonds, but also our intention to vigorously pursue fraudulent conduct related to security-based swap agreements.”
David Nelson, Director of the SEC’s Miami Regional Office, said, “These defendants engaged in misconduct that defrauded Jefferson County and municipal bond investors. By failing to disclose the payment scheme, they deprived Jefferson County and investors of an objective and impartial bond underwriting process and swap agreement negotiations.”
According to the SEC’s complaint filed in the U.S. District Court for the Northern District of Alabama, Langford selected Blount Parrish to participate in every Jefferson County municipal bond offering and security-based swap agreement transaction during 2003 and 2004, enabling the firm to collect more than $6.7 million in fees.
Moreover, the SEC alleges, Langford and Blount concealed the payment scheme by using their long-time friend, Albert LaPierre, an Alabama registered political lobbyist, as a conduit.
The case is the SEC’s first enforcement action involving security-based swap agreements. A swap agreement is a financial derivative instrument where, for example, an issuer such as Jefferson County agrees to exchange periodic interest rate payments on a specified principal amount of debt with a counterparty. A security-based swap agreement is a type of swap agreement in which a material term is based on the price, yield, value or volatility of any security, group or index of securities.
The SEC is charging Langford, Blount, and Blount Parrish with antifraud violations of the federal securities laws. LaPierre is charged with aiding and abetting Blount and Blount Parrish’s violations.
The SEC’s complaint alleges that prior to Langford’s election to the County Commission, Blount Parrish had not received any municipal bond business from Jefferson County for years. After Langford won his primary election for the County Commission, however, the SEC alleges that Blount began making payments and conferring other benefits to Langford, funneling funds through LaPierre. The SEC alleges Blount’s efforts were rewarded because Langford, who served as president of the County Commission from November 2002 to November 2007, selected Blount Parrish to participate in $6.4 billion worth of Jefferson County bond offerings and swap agreement transactions from March 2003 to December 2004. Blount Parrish’s fees for these transactions comprised over 70 percent of the firm’s annual revenue during the relevant period, according to the SEC’s complaint.
The SEC alleges that of the five municipal bond offerings at issue, Blount Parrish participated as lead or co-underwriter on three municipal bond offerings, and as a remarketing agent on a fourth bond offering. In connection with all five bond offerings, Langford signed the official statements, which were intended to disclose material information to investors, on behalf of Jefferson County. In its role as underwriter or remarketing agent of four of the bond offerings, Blount Parrish reviewed the official statements and distributed those materials to investors in connection with its sale of these securities. The official statements did not disclose Blount’s payments to Langford.
The SEC further alleges that Langford directed that Blount Parrish be included in four security-based swap transactions, including a $1.5 billion transaction that was the largest swap transaction in Jefferson County’s history. Langford signed letter agreements with the counterparties to the swap transactions representing that Jefferson County had requested and approved fee payments to Blount’s firm for services to Jefferson County. Other than the swap counterparties, the fees Blount Parrish received on these swap transactions were substantially larger than those received by other professionals on the deals. However, neither Langford nor Blount disclosed to Jefferson County the payments from Blount to Langford.
The complaint charges Langford, Blount and Blount Parrish with violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. Blount and Blount Parrish are charged with violations of Section 15B(c)(1) of the Exchange Act and Municipal Securities Rulemaking Board Rules G-17 and G-20. LaPierre is charged with aiding and abetting Blount and Blount Parrish’s violations. The SEC’s complaint seeks judgments against each defendant providing for permanent injunctions, disgorgement with prejudgment interest, and financial penalties.
The SEC’s investigation is continuing.List your legal jobs on the LawFuel Network