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Looting Main Street

Page 4 of 6

In a small office in a federal building in downtown Birmingham, just blocks from where civil rights demonstrators shut down the city in 1963, Assistant U.S. Attorney George Martin points out the window. He's pointing in the direction of the Tutwiler Hotel, once home to one of the grandest ballrooms in the South but now part of the Hampton Inn chain.

"It was right around the corner here, at the hotel," Martin says. "That's where they met — that's where this all started."

They means Charles LeCroy and Bill Blount, the two principals in what would become the most important of all the corruption cases in Jefferson County. LeCroy was a banker for JP Morgan, serving as managing director of the bank's southeast regional office. Blount was an Alabama wheeler-dealer with close friends on the county commission. For years, when Wall Street banks wanted to do business with municipalities, whether for bond issues or rate swaps, it was standard practice to reach out to a local sleazeball like Blount and pay him a shitload of money to help seal the deal. "Banks would pay some local consultant, and the consultant would then funnel money to the politician making the decision," says Christopher Taylor, the former head of the board that regulates municipal borrowing. Back in the 1990s, Taylor pushed through a ban on such backdoor bribery. He also passed a ban on bankers contributing directly to politicians they do business with — a move that sparked a lawsuit by one aggrieved sleazeball, who argued that halting such legalized graft violated his First Amendment rights. The name of that pissed-off banker? "It was the one and only Bill Blount," Taylor says with a laugh.

Blount is a stocky, stubby-fingered Southerner with glasses and a pale, pinched face — if Norman Rockwell had ever done a painting titled "Small-Town Accountant Taking Enormous Dump," it would look just like Blount. LeCroy, his sugar daddy at JP Morgan, is a tall, bloodless, crisply dressed corporate operator with a shiny bald head and silver side patches — a cross between Skeletor and Michael Stipe.

The scheme they operated went something like this: LeCroy paid Blount millions of dollars, and Blount turned around and used the money to buy lavish gifts for his close friend Larry Langford, the now-convicted Birmingham mayor who at the time had just been elected president of the county commission. (At one point Blount took Langford on a shopping spree in New York, putting $3,290 worth of clothes from Zegna on his credit card.) Langford then signed off on one after another of the deadly swap deals being pushed by LeCroy. Every time the county refinanced its sewer debt, JP Morgan made millions of dollars in fees. Even more lucrative, each of the swap contracts contained clauses that mandated all sorts of penalties and payments in the event that something went wrong with the deal. In the mortgage business, this process is known as churning: You keep coming back over and over to refinance, and they keep "churning" you for more and more fees. "The transactions were complex, but the scheme was simple," said Robert Khuzami, director of enforcement for the SEC. "Senior JP Morgan bankers made unlawful payments to win business and earn fees."

Given the shitload of money to be made on the refinancing deals, JP Morgan was prepared to pay whatever it took to buy off officials in Jefferson County. In 2002, during a conversation recorded in Nixonian fashion by JP Morgan itself, LeCroy bragged that he had agreed to funnel payoff money to a pair of local companies to secure the votes of two county commissioners. "Look," the commissioners told him, "if we support the synthetic refunding, you guys have to take care of our two firms." LeCroy didn't blink. "Whatever you want," he told them. "If that's what you need, that's what you get. Just tell us how much."

Just tell us how much. That sums up the approach that JP Morgan took a few months later, when Langford announced that his good buddy Bill Blount would henceforth be involved with every financing transaction for Jefferson County. From JP Morgan's point of view, the decision to pay off Blount was a no-brainer. But the bank had one small problem: Goldman Sachs had already crawled up Blount's trouser leg, and the broker was advising Langford to pick them as Jefferson County's investment bank.

The solution they came up with was an extraordinary one: JP Morgan cut a separate deal with Goldman, paying the bank $3 million to fuck off, with Blount taking a $300,000 cut of the side deal. Suddenly Goldman was out and JP Morgan was sitting in Langford's lap. In another conversation caught on tape, LeCroy joked that the deal was his "philanthropic work," since the payoff amounted to a "charitable donation to Goldman Sachs" in return for "taking no risk."

That such a blatant violation of anti-trust laws took place and neither JP Morgan nor Goldman have been prosecuted for it is yet another mystery of the current financial crisis. "This is an open-and-shut case of anti-competitive behavior," says Taylor, the former regulator.

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Matt Taibbi

Matt Taibbi is a contributing editor for Rolling Stone. He’s the author of five books and a winner of the National Magazine Award for commentary. Please direct all media requests to taibbimedia@yahoo.com.

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