Alabama Officials File $1.6 Billion Claim Against County

State and city officials in Birmingham, Alabama, filed a $1.63 billion claim in Jefferson County’s bankruptcy case on behalf of sewer system ratepayers, alleging county employees engaged in criminal conduct.

Birmingham City Council President Roderick Royal and Alabama state legislator Mary Moore were among a group of 14 officials and private citizens who filed the claim yesterday in U.S. Bankruptcy Court in Birmingham on behalf of about 130,000 ratepayers in the county.

The claim is based on “published financial data and other evidence which establish the cost to the debtor county, and hence indirectly the ratepayer class, of dishonest, unlawful and sometimes criminal conduct on the part of employees of the county, certain private parties and others involved in municipal finance,” according to the filing.

Jefferson County entered the largest U.S. municipal bankruptcy in November after local and state officials and creditors failed to implement an agreement to cut the county’s sewer debt by about $1 billion. The county owes creditors about $4.2 billion, including more than $3 billion in bonds related to the sewer system, according to court records.

The bankruptcy is tied to a sewer refinancing tainted by political corruption. In 2009, JPMorgan Chase & Co. (JPM) agreed to a $722 million settlement with the U.S. Securities and Exchange Commission over payments its bankers allegedly made to people tied to county politicians to win business.

Former Jefferson County Commissioner Larry Langford was convicted on charges of accepting bribes. In 2008, a derivative-laden refinancing set up by JPMorgan unraveled as fallout from the subprime-mortgage market collapse rippled through Wall Street, sending debt costs soaring.

The case is In re Jefferson County, 11-05736, U.S. Bankruptcy Court, Northern District of Alabama (Birmingham).

To contact the reporter on this story: Edvard Pettersson in Los Angeles at epettersson@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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