Feds Probe Merrill, NIR In Magnetar CDO Case

Jun 15 2011 | 11:39am ET

Merrill Lynch and hedge fund NIR Capital Management are under investigation over a collateralized debt obligation the former structured for another hedge fund, Magnetar Capital.

The probe is part of a larger investigation of banks' CDO practices, and at least the second involving securities created for Magnetar. The SEC is looking into whether Merrill Lynch, now part of Bank of America, misled investors about Magnetar's alleged role in selecting the securities in a CDO called Norma, and whether the bank mispriced those assets. NIR is under scrutiny as the collateral manager for that CDO; the SEC wants to know whether it fulfilled its obligations to the CDO's investors, the Financial Times reports.

In a lawsuit against Merrill settled last year, the Dutch bank Rabobank said Merrill "hand-picked a beholden collateral manager that was willing to ignore its fiduciary duties to Norma's investors by selecting Norma's collateral pool at Merrill Lynch's behest rather than on the basis of the rigorous independent analysis."

Magnetar has not been accused of any wrongdoing and denies allegations—set out in the earlier lawsuit against Merrill—that it helped pick the assets that went into the Norma CDO and then shorted it. The SEC is also investigating JPMorgan Chase over a CDO it allegedly structured and marketed at Magnetar's behest, and has warned a JPMorgan executive and an executive at the CDO's collateral manager, the now-bankrupt hedge fund GSC Group.

The CDO probe is only the latest legal trouble for NIR, which has faced lawsuits accusing it of lying to investors about its funds' performance. Federal prosecutors are also looking into whether the firm paid kickbacks in exchange for helping it inflate the value of its assets.


In Depth

Steinbrugge: Top 10 Hedge Fund Industry Trends for 2017

Jan 3 2017 | 9:03pm ET

Each year, Agecroft Partners' Don Steinbrugge predicts the top hedge fund industry...

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

DarcMatter: The Top Trends in Alternative Investments for 2017

Jan 13 2017 | 8:22pm ET

The $7 trillion alternative investments industry is poised for continued growth...

 

From the current issue of

The U.S. Commodity Futures Trading Commission (CFTC) ordered The Goldman Sachs Group Inc., and Goldman, Sachs & Co. to pay a $120 million penalty for attempted manipulation and false reporting of ISDAFIX Benchmark Rates, a global benchmark for interest rate products.