Judge Junks Fraud Charge Against Man In Magnetar Case

Oct 28 2011 | 12:12pm ET

A federal judge has dismissed fraud charges against the only individual charged in the Securities and Exchange Commission's lawsuit over a collateralized debt obligation linked to hedge fund Magnetar Capital.

U.S. District Judge Miriam Goldman Cederbaum tossed an allegation that Edward Steffelin engaged in fraud or deceit in constructing the $1.1 billion Squared CDO 2007-1. The SEC had alleged that Steffelin, who worked at the firm, GSC Group, that selected the securities that went into the CDO, failed to disclose Magnetar's role in picking those securities and that Magnetar was betting against the subprime mortgages that went into the CDO.

But Cederbaum ruled that Steffelin has no "duty to the investors" in the CDO, which was sold by JPMorgan Chase. The judge, however, refused to dismiss the SEC's other allegations against Steffelin, including that he sought to hide the CDO's risks.

According to the SEC, Steffelin was trying to land a job at Magnetar at the time the Squared CDO was put together.

Magnetar has not been accused of any wrongdoing in the Squared case, and has denied doing anything untoward.

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