SEC May Sue Hedge Funds In CDO Deals

May 13 2011 | 1:10pm ET

Hedge funds that played a role in structuring mortgage-backed securities deals only to short them could face Securities and Exchange Commission charges.

The regulator is mulling civil charges against hedge funds as part of its broader investigation into collateralized debt obligations and other mortgage-backed products, The Wall Street Journal reports. The SEC is investigating nearly a half-dozen banks, most of which, led by JPMorgan Chase, are pursuing settlements with the agency.

But the SEC plans to go further than that, planning to file civil charges against at least one individual at each firm, according to the Journal. In January, the SEC sent Wells notices to former JPMorgan executive Michael Llodra and former GSC Group executive Edward Steffelin, warning the two that they plan to bring civil charges related to a $1.1 billion CDO called "Squared."

The SEC is said to believe that hedge fund Magnetar Capital had an undisclosed hand in selecting the securities that went into the CDO. Magnetar has not been accused of, and has denied, any wrongdoing.

The SEC alleged last year that Paulson & Co. played a similar role on a CDO crafted by Goldman Sachs; Goldman settled those charges last year for $550 million, but Paulson has not been charged.

In the Goldman case, the SEC has sued Goldman executive Fabrice Tourre.


In Depth

Exotic Assets: Investing In Rare Violins

Jan 17 2017 | 4:43pm ET

By definition, alternative investments include exotic assets far beyond your typical...

Lifestyle

'Tis the Season: Wall Street Holiday Parties Back In Fashion

Dec 22 2016 | 9:23pm ET

Spending on Wall Street holiday parties has largely returned to pre-2008 levels...

Guest Contributor

The Trump Administration: What It Could Mean for Carried Interest

Jan 19 2017 | 5:25pm ET

The arrival of the Trump administration brings the potential for a repeal of the...