Legal News

SEC Interprets Securities Fraud Broadly, Sues Birmingham Mayor

By Dan Slater

Will April be remembered as the month the SEC took its vitamins?

First a rebuff of Congress, then a big stock fraud bust. Now, the WSJ and the NYT are reporting that the SEC has employed a broad interpretation of securities fraud to sue Birmingham, Alabama’s mayor, Larry Langford (pictured).

According to the civil suit, Langford allegedly received more than $156,000 from a friend, William Blount, for arranging millions of dollars in fees — through municipal bond offerings and swap agreements — for Blount’s investment banking firm. The suit also accuses Albert W. LaPierre, an Alabama lobbyist and friend of the defendants, of aiding and abetting the deals.

The suit, writes the WSJ, could establish a precedent for the SEC to bring cases related to swap agreements, a type of derivative not explicitly regulated by the agency. Some legal experts said the SEC is using a broad interpretation of securities fraud to include the swaps, characterizing them as parts of bond offerings that are subject to SEC regulation.

The SEC claims that Langford, 60, selected Blount’s firm to participate in every Jefferson County muni-bond offering and security-based swap agreement in 2003 and 2004. Blount’s firm reportedly collected more than $6.7 million in fees.

In return, the SEC alleges, Blount and his firm helped Langford, who’d racked up “credit-card debt and department-store clothing bills,” obtain a $50,000 loan by influencing Colonial Bank’s approval of the loan, despite Langford’s “poor credit score.” Blount allegedly contacted Colonial’s chief credit officer, whom he was in a relationship with at the time, the suit alleges. The loan was approved and then paid off by LaPierre using a loan approved by the chief credit officer, the suit alleges. A bank spokeswoman declined to comment.

Most of the alleged payments occurred in “close proximity” to regular Wednesday dinner meetings the three men had at an unidentified Birmingham restaurant, according to the SEC.

Blount and Langford have said the SEC doesn’t have authority to investigate the swaps because they aren’t securities and fall outside the SEC’s jurisdiction.

Full post as published by Law Blog - WSJ.com on May 01, 2008 (boomark / email).