Wednesday, 30 July 2014
Last updated 5 min ago
Feb 29 2012 | 4:29am ET
Another financial services firm has been fined for failing to tell clients about the role played by hedge fund Magnetar Capital in the structuring of collateralized debt obligations.
Massachusetts Secretary of the Commonwealth William Galvin yesterday ordered State Street Global Advisors. to pay $5 million in restitution and penalties. The Bay State's top regulator said that State Street asset manager failed to mention that Magnetar had helped select the assets that went into the Carina CDO, which was structured by Deutsche Bank. According to Galvin, investors were also kept in the dark about the fact that Magnetar was betting against the CDO.
"Without disclosure of this material information, investors were unaware of a potential conflict of interest between Magnetar and other Carina investors and thus were unable to make a fully informed investment decision with respect to Carina," Galvin said.
SSgA served as the investment manager of Carina and helped market it, including to its own clients. The CDO collapsed just 16 months after it was created, costing investors $450 million.
Magnetar was a key investor in some $30 billion worth of CDOs issued just before the financial crisis. It has been linked to several CDOs that led to regulatory scrutiny of banks, but the firm has never been accused of wrongdoing and it has denied that it played a crucial role in asset selection.
Galvin ordered SSgA, which did not comment on the case, to pay the $3.45 million it earned on the CDO, and a $1.45 million fine.
Jul 8 2014 | 10:48am ET
The surge in derivatives regulation is among the most complex challenges facing the financial services industry today. Northern Trust’s Joshua Satten recently spoke with FINalternatives to share insights into the challenges presented by new regulation and explore how the industry is responding. Read more…