GSC Trustee Settles With SEC

Jun 23 2011 | 2:19pm ET

Bankrupt hedge fund GSC Group’s federal trustee has reached a settlement with the U.S. Securities and Exchange Commission over its marketing of collateralized debt obligations that defaulted in 2008.

GSC filed a motion in Manhattan on Tuesday asking a U.S. bankruptcy judge to approve the SEC accord. Under the terms of the deal, GSC would pay no monetary damages. In a settlement announced the same day, JPMorgan Chase & Co. agreed to pay $153.6 million to end an SEC lawsuit over the CDOs.

At the heart of the settlement is an investment called Squared CDO, managed by GSC. The regulator says GSC did not “adequately inform” investors that the hedge fund—Magnetar—that helped pick the CDOs for the portfolio had also made a $600 million bet the securities would decline in price. Court papers show that when the CDOs defaulted in January 2008, investors lost most of their money.

A hearing will be held on July 13 to approve the settlement.

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