J.P. Morgan Securities Agrees to $228M Settlement in Muni Bond Reinvestment Action

WASHINGTON, D.C. - (Mealey's) J.P. Morgan Securities LLC (JPMS) has agreed to pay $228 million to settle charges brought by the Securities and Exchange Commission and other state and federal authorities in connection with its fraudulent rigging of at least 93 municipal bond reinvestment transactions in 31 states, according to a press release issued July 7 by the SEC (Securities and Exchange Commission v. J.P. Morgan Securities LLC, No. 11-3877, D. N.J.).

According to the press release, JPMS will pay approximately $51.2 million "that will be returned to the affected municipalities or conduit borrowers" as well as $177 million "to settle parallel charges brought by other federal and state authorities."

In connection with the settlement, which is subject to court approval, the SEC filed a complaint in the U.S. District Court for the District of New Jersey, naming JPMS as the lone defendant.

The SEC alleges that JPMS violated Section 15(c)(1)(A) of the Securities Exchange Act of 1934 by participating in "fraudulent bidding practices involving the temporary investment of proceeds from the sale of tax-exempt municipal securities in certain reinvestment instruments by state and local governmental entities in the United States" from 1997 through 2005.

In particular, the SEC claims that JPMS "rigged at least 93 transactions concerning the reinvestment of proceeds from the sale of over $14.3 billion of underlying municipal securities."

Moreover, according to the press release, "In a related enforcement action, the SEC also barred former JPMS vice president and marketer James L. Hertz from association with any broker, dealer, investment adviser, municipal securities dealer, municipal adviser, transfer agent, or nationally recognized statistical rating organization, and from participating in any penny stock offering."

"This sanction is based on Hertz's December 6, 2010 guilty plea to two counts of conspiracy and one count of wire fraud for engaging in misconduct in connection with the competitive bidding process involving the investment of proceeds of tax-exempt municipal bonds."

The press release is available online at:  http://www.sec.gov/news/press/2011/2011-143.htm.

[Editor's Note:  Full coverage will be in the July 2011 issue.  In the meantime, the JPMS complaint is available at www.mealeysonline.com or by calling the Customer Support Department at 1-800-833-9844.  Document #57-110711-036C.  For all of your legal news needs, please visit www.lexisnexis.com/mealeys.]

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For more information, call editor Timothy J. Raub at 215-988-7740, or email him at timothy.raub@lexisnexis.com.