By recommending financial deals that were lucrative for themselves and other bankers, the consultants greatly increased the costs to the county. Officials of many other municipalities around the country also relied on investment advice to get involved in financing schemes they poorly understood before the 2008 financial meltdown.
The illegal payments made by J.P. Morgan to ensure its noncompetitive monopoly on the county's business represents a classic example of pay-to-play corruption.
Excerpt from the SEC complaint (pp. 5-6):
"In November 2002, Larry Langford became president of the County commission and head of the commission's finance committee that had significant authority over approval of County bond deals and swap agreements. Early in his administration, Langford made it clear to the County's financial advisor that he wanted William Blount, head of the Montgomery broker-dealer Blount Parrish & Co., involved in every County financing transaction. Langford and Blount were long-time friends and political colleagues.
Prior to Langford involving Blount in County bond and swap deals, Blount Parrish had not received any County business from 1997 through 2002. However, Langford was able to ensure Blount's selection because his positions as commission president and head of the finance committee effectively allowed him to control the selection process for underwriters and swap providers.
From January until May 1, 2003, J.P. Morgan Securities solicited the County, and Langford in particular, to hire the firm as underwriter on a new sewer bond offering and to enter into another swap agreement. During that period, LeCroy met several times with Langford and/or Blount regarding this deal, which became the 2003-B transaction. Because Blount Parrish could not serve as a swap provider under Alabama law, Blount solicited Langford to select Goldman Sachs Capital Markets Inc. to participate in the 2003-B swap transaction because Blount Parrish had a consulting agreement with Goldman Sachs.
Goldman Sachs and another New York-based broker-dealer were also pitching swap deals to the County. To prevent Goldman Sachs and the other firm from executing their own swap transactions with the County and ensure the County selected J.P. Morgan Securities instead, LeCroy and MacFaddin agreed to Langford's request that J.P. Morgan Securities make payments to Goldman Sachs and the other firm.
On February 25, 2003, Langford and the County commission approved a resolution authorizing the $1.1 billion 2003-B bond offering. J.P. Morgan Securities would serve as lead underwriter, and its affiliated commercial bank would serve as swap provider for the corresponding $1.1 billion swap agreement. The swap agreement was executed on March 28, 2003, with an effective date of May 1, 2003 to coincide with the bond offering.
In connection with the bond deal and swap agreement, LeCroy and MacFaddin agreed in their negotiations with Langford to pay Goldman Sachs $3 million, and the other firm $1.4 million. In turn, Goldman Sachs agreed to pay Blount-Parrish, its consultant, $300,000.
Neither Goldman Sachs nor the other firm entered into a swap agreement with the County, or served as an advisor to the County on this transaction. J.P. Morgan Securities ultimately negotiated a separate swap agreement between its affiliated bank and Goldman Sachs as a mechanism to make the $3 million payment.
The official documents related to the bond offering and the swap agreement did not disclose the payments from J.P. Morgan Securities to Goldman Sachs and the other firm, or the payment from Goldman Sachs to Blount Parrish."