Magnetar Rejects SEC’s Take On CDO

Jun 22 2011 | 10:19am ET

In the now-settled matter of Securities and Exchange Commission v. JPMorgan Chase, Magnetar Capital would like to politely agree to disagree.

The hedge fund, which the SEC said “heavily influenced” the selection of securities for the collateralized debt obligation—allegedly structured at its behest—at the heart of its case against JPMorgan, “respectfully [stands] by our prior statements on these topics,” which amount to a denial that Magnetar had much to do with the CDO at all.

“We did not control the asset-selection process and our Mortgage CDO investment strategy was designed and implemented to maintain a market-neutral portfolio,” the hedge fund said in a statement.

Magnetar was never accused of any wrongdoing in the case, and says it never will be: “The SEC Staff issued a closing letter to Magnetar stating that it does ‘not intend to recommend any enforcement action’” against the hedge fund, its funds or staff, Magnetar said in its statement.

JPMorgan yesterday agreed to pay $154 million to settle the SEC probe of the $1.1 billion “Squared” CDO. The SEC charges that it misled investors in a complex mortgage securities transaction just as the housing market was starting to plummet. Under the settlement, harmed investors will receive all of their money back.


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