07 July 2011

SEC Charges JPM with Regularly Rigging Muni Bond Markets Across the Country For Years

Such serious charges of bribery and corruption that are settled with fines and no admission of guilt despite overwhelming evidence often initiated by the States, is a merely the cost of doing business when one is occasionally discovered in an ongoing confidence game.

This global financial cartel robs billions from the public on a regular basis across a wide range of financial and commodity markets.

The fines are paid, a highly compensated individual takes the nominal 'punishment' while keeping the proceeds, the politicians and regulators are paid, and the fraud continues on.

As Bloomberg TV snarkily observed today, the $238 million dollar fine represents less than ONE day's take for JPM, only six hours work in the markets. The stock was up on news of the favorable settlement.

Where is the reform? Where is the justice? Where is the deterrence?

Why not ban the institution who failed to control itself and its employees from participation in Federal Reserve banking subsidies and in government financial markets for some reasonable period of time?

Better yet, why are those who speculate in and manipulate the markets for their own gains with one hand, also taking cheap subsidy money from the government to 'improve the economy' and economic confidence with the other? Where is the repair of the public trust betrayed? Is this yet another fallacy of the efficient and perfectly rationale, self-regulating markets?

It is hard to determine what Obama really is, what he stands for, behind the artfully crafted, histrionic façade. He seems at times to be a sort of Herbert Hoover, or even a Neville Chamberlain, consistently giving ground to the bankers' bully boys. Or is he just another power groupie like so many others these days, without principle or character, wishing to 'get his share,' wishing to be accepted?

I suspect that like most of the politicians and bureaucrats he is without a moral compass, rationalizing a grotesque selfishness above honor, oath, and duty, despising the many, worshipping at the altar of greed.

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustained recovery.

SEC Charges J. P. Morgan Securities with Fraudulent Bidding Practices Involving Investment of Municipal Bond Proceeds

Washington, D.C., July 7, 2011 – The Securities and Exchange Commission today charged J.P. Morgan Securities LLC (JPMS) with fraudulently rigging at least 93 municipal bond reinvestment transactions in 31 states, generating millions of dollars in ill-gotten gains.

To settle the SEC’s fraud charges, JPMS agreed to pay approximately $51.2 million that will be returned to the affected municipalities or conduit borrowers. JPMS and its affiliates also agreed to pay $177 million to settle parallel charges brought by other federal and state authorities.

“JPMS improperly won bids by entering into secret arrangements with bidding agents to get an illegal 'last look' at competitors’ bids,” said Robert Khuzami, Director of the SEC's Division of Enforcement. “Municipal issuers and investors didn't stand a chance against the fraudulent strategies JPMS and others used to guarantee profits."

Elaine C. Greenberg, Chief of the SEC's Municipal Securities and Public Pensions Unit, added, “When powerful financial institutions like JPMS conspire with each other to intentionally violate regulations designed to ensure fair investment prices, the integrity of the municipal marketplace becomes corrupted. Rather than playing by the rules, the rules got played.”

Typically, when investors purchase municipal securities, the municipalities temporarily invest the proceeds of the sales in municipal reinvestment products until the money is used for the intended purposes. Under relevant Internal Revenue Service (IRS) regulations, the proceeds of tax-exempt municipal securities generally must be invested at fair market value. The most common way of establishing fair market value is through a competitive bidding process in which bidding agents search for the appropriate investment vehicle for a municipality.

The SEC alleges that from 1997 through 2005, JPMS’s fraudulent practices, misrepresentations and omissions undermined the competitive bidding process, affected the prices that municipalities paid for reinvestment products, and deprived certain municipalities of a conclusive presumption that the reinvestment instruments had been purchased at fair market value. JPMS’s fraudulent conduct also jeopardized the tax-exempt status of billions of dollars in municipal securities because the supposed competitive bidding process that establishes the fair market value of the investment was corrupted. The employees involved in the alleged misconduct are no longer with the company.

According to the SEC’s complaint filed in U.S. District Court for the District of New Jersey, JPMS, acting as the agent for its affiliated commercial bank, JPMorgan Chase Bank, N.A., at times won bids because it obtained information from the bidding agents about competing bids, a practice known as “last looks.” In other instances, it won bids set up in advance for JPMS to win (“set-ups”) because the bidding agent deliberately obtained non-winning bids from other providers, and it facilitated bids rigged for others to win by deliberately submitting non-winning bids.

Without admitting or denying the allegations in the SEC’s complaint, JPMS has consented to the entry of a final judgment enjoining it from future violations of Section 15(c)(1)(A) of the Securities Exchange Act of 1934 and has agreed to pay a penalty of $32.5 million and disgorgement of $11,065,969 with prejudgment interest of $7,620,380. The settlement is subject to court approval. (This judgements to 'not do it again' are routinely ignored even by their own records. Why do they even bother?)

In a related enforcement action, the SEC barred former JPMS vice president and marketer James L. Hertz from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, 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 Commission recognizes Hertz’s cooperation in the SEC’s investigation and investigations conducted by other law enforcement agencies...