First Enforcement Case Involving Security-Based Swaps

SEC v. Langford, Civil Action No. cv-08-B-0761-S (N.D. Ala. April 30, 2008) is the Commissions first enforcement action involving security-based swap agreements – a derivative which in this case involved an agreement to exchange periodic interest rate payments on an amount of debt. It is also involves the sale of municipal bonds as in In the Matter of City of San Diego, Release No. 8751, Admin. Proceeding File No. 3-12478 (Nov. 14, 2006), previously discussed here.

The complaint in Langford is a based on a kickback scheme involving four persons: Larry Langford, the current mayor of Birmingham, Alabama; William Blount, the co-owner and chairman of Blount Parris, a municipal securities broker-dealer registered with the SEC, which is also a defendant; and Albert LaPierre, a lobbyist registered with the State of Alabama and a former executive director of the Alabama Democratic Party. The complaint is based on fees and payments made in connection with five County and offerings and four security-based swap agreements in 2003 and 2004.

Messrs. Langford, Blount and LaPierre have a years-long personal relationship. Prior to June 2002 when Mr. Langford was elected County Commissioner, Blount Parrish had not had any County municipal bond work in years. Following the election Mr. Blount began making payments and conferring benefits on Mr. Langford through defendant LaPierre. Those payments exceed $156,000 over a two year period.

Once Mr. Langford became Chairman of the County Commission, Blount Parrish participated in every Jefferson County municipal bond offering and security-based swap agreement transaction over a two-year period. This included five municipal bond offerings in which Blount Parrish participated as lead or co-underwriter or as a remarketing agent and four security-based swap transactions. The bond firm earned over $6.7 million in fees. In these transactions, the payments between Messrs. Langford and Blount were not disclosed to the County, according to the complaint.

The complaint, which alleges violations of the anti-fraud provisions as well as Exchange Act Section 15B and rules of the Municipal Securities Rulemaking Board, seeks permanent injunctions, disgorgement, prejudgment interest and penalties. The case is in litigation. The SEC’s investigation is also continuing.