PhillyDeals: JPMorgan owes Phila. $9M in fraud scam

A branch of JPMorgan Chase, which owes Philadelphia's City Hall, below.
A branch of JPMorgan Chase, which owes Philadelphia's City Hall, below. (ROBERT CAPLIN / Bloomberg News)
Posted: July 12, 2011

JPMorgan Chase & Co. has agreed to pay Philadelphia at least $9 million to settle charges the company's municipal-finance bankers ripped off the cash-strapped city in "bid-rigging" that cheated taxpayers of investment profit on hundreds of millions of dollars from city bond sales in the 1990s and early 2000s.

The payments are part of settlements totaling more than $200 million announced last week between the bank, the U.S. Department of Justice's antitrust office, the Philadelphia office of the Securities and Exchange Commission, the Internal Revenue Service, the Treasury Department's Office of the Comptroller of the Currency, and a group of state attorneys general, including Pennsylvania's.

"JPMorgan Chase does not tolerate anticompetitive activity or other violations of law," the bank said in a statement I got from spokeswoman Jennifer Zuccarelli. She said that the bankers responsible had "concealed their conduct from management," that they no longer worked for JPMorgan, and that the sales desk accused of ripping off the towns has been disbanded.

Last fall, a former JPMorgan municipal-bond salesman, James Hertz of Cranford, N.J., pleaded guilty to federal fraud charges in connection with some of those bond sales. Hertz, who worked at JPMorgan from 1994 to 2007, has been cooperating with investigators, and additional criminal charges are possible, according to people familiar with the investigations.

The payments to Philadelphia and more than 100 other communities were not detailed in last week's settlement announcements, but some have since become public in court filings. Philadelphia was owed more than any other community, among the towns listed so far.

JPMorgan owes the Pennsylvania Intergovernmental Cooperation Authority (PICA), the state agency that oversees city finances, $1.3 million for payments the bank withheld from three Special Tax Revenue Refunding Bonds in 1993-96, plus $2.9 million in interest and penalties, as part of the SEC's portion of the overall settlement.

JPMorgan also owes PICA a total of $3.3 million in what Philadelphia-based SEC municipal-securities unit head Elaine Greenberg calls "ill-gotten gains," penalties, and interest from a 2001 bond deal, plus an additional $1.4 million to city-owned Philadelphia International Airport, as part of a separate settlement with the Office of the Comptroller of the Currency.

There could be more. Other federal agencies and the state Attorney General's Office haven't said how much, if anything, the city is owed.

PICA boss Uri Monson told me he hasn't yet received formal confirmation of how much the city is owed. When he does, lawyers for the city will conduct a legal review before any money gets to municipal coffers. The state Attorney General's Office is also reviewing the cases.

Should this reassure us? A long list of Philadelphia lawyers and other professional consultants got paid to make sure the bond issues were proper in the first place. And none of them seems to have had any idea the city was getting ripped off.

Hospital job for Skanska

The Philadelphia office of multinational construction contractor Skanska USA says it has been hired to run the $215 million, 144-bed expansion of Nemours/Alfred I. duPont Hospital for Children just north of Wilmington.

The five-story project includes a 188-space parking garage, a new emergency department, stores, and a cafeteria connected to the existing hospital, said Skanska's local boss, Ed Szwarc.

Apartments venture

New York City apartment landlord Vantage Properties L.L.C. has joined investor Angelo, Gordon & Co., part-owner of The Inquirer, Daily News, and, with a winning offer for $241.5 million to buy 2,200 apartments in Plainsboro, Neptune, and other central New Jersey towns from American International Group (AIG).

Vantage, founded in 2005 and run by Neil Rubler, has reorganized the New Jersey apartments into its new suburban subsidiary, Candlebrook. The firm also wants to buy apartment complexes in the Philadelphia area, says acquisitions chief Devin Aronstam, who used to work for Phila- delphia-based Lubert-Adler.

"I see a lot of similarities" between suburban New York and Greater Philadelphia, Aronstam told me: "There are high barriers to entry, a lack of land, and a lack of zoning approval" for new multifamily projects. "These townships are notoriously impossible to get new apart- ments built. No one wants

to burden their schools."

He's hoping he'll be able to raise rents, with demand for apartments rising faster than the suburban supply.

Contact columnist Joseph N. DiStefano at 215-854-5194


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