Magnetar Sued Over CDO

Apr 9 2012 | 11:18am ET

Magnetar Capital has had its name dragged through the mud over the $30 billion in collateralized debt obligations it was involved with prior to the financial crisis, but it has never been formally accused of wrongdoing. Until now.

The hedge fund was sued by Italian bank Intesa Sanpaolo, accusing it and Crédit Agricole of fraud over a 2006 CDO. Intesa claims that it lost $180 million after CA's Calyon unit convinced it to invest in the CDO, Pyxis ABS CDO 2006-1.

That CDO was a "scheme designed by Magnetar," the complaint alleges. "Calyon collected fees on the deal and, through the Pyxis swap, shifted losses on the CDO which it would have otherwise borne itself."

Evanston, Ill.-based Magnetar has previously been named in lawsuits and investigations which claim it helped select the securities that went into CDOs structured by banks. But those probes and claims have focused on the banks, and their alleged failure to disclose the hedge fund's role. Magnetar has denied playing a crucial role in asset selection.

Putnam Advisory Co., the independent firm hired by Calyon to select the securities in Pyxis, was also named in Intesa's suit.

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