SSgA Rapped For Magnetar-Linked CDO

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.


In Depth

Dillon Eustace: The Advantages of ICAVs

Feb 11 2016 | 7:51pm ET

As the growth of alternative investment vehicles continues, global asset managers...

Lifestyle

Citadel's Ken Griffin Donates $40M To New York's Museum of Modern Art

Dec 22 2015 | 9:23pm ET

Citadel founder Ken Griffin has donated $40 million to New York’s Museum of Modern...

Guest Contributor

Hedging Against Reputational Risk in the 21st Century

Feb 12 2016 | 7:18pm ET

For investors, the first step in researching a new fund or manager is to google...