Deutsche Bank Fined For Magnetar-Linked CDO

Mar 15 2013 | 12:41am ET

Massachusetts regulators have fined Deutsche Bank for failing to tell investors about a conflict of interest it had on a collateralized debt obligation linked to hedge fund Magnetar Capital.

William Galvin, Massachusetts' secretary of the commonwealth and head of its Securities Division, ordered Deutsche Bank to pay $17.5 million for not telling investors of the conflict and for failing to supervise the employees who failed to disclose it.

According to Galvin, Deutsche Bank's Carina product was a "co-investment CDO" created with Magnetar, one of six it worked on with the hedge fund, worth a total of $10 billion. But despite Magnetar's alleged role—and the fact that the hedge fund was allegedly shorting some of the assets in the $1.56 billion CDO—Deutsche Bank never mentioned it.

"Nowhere in the marketing materials for Carina was there any reference to the conflicts of interest with DBSI SSG and Magnetar in the structuring, underwriting and marketing of Carina," Galvin said. The CDO eventually "resulted in catastrophic losses to investors."

One investor learned that Magnetar was shorting some of the assets, and pulled out. A Deutsche Bank employee than asked in an e-mail why that investor knew "Magnetar is shorting BBBs?"

Magnetar has not been accused of any wrongdoing.

Deutsche Bank is the second bank fined by Massachusetts over the Carina CDO. Last year, it imposed a $5 million levy on State Street Global Advisors, also for failing to disclose Magnetar's role.


In Depth

GSAM's Papagiannis: Liquid Alternatives For The Long Run

Apr 21 2017 | 8:44pm ET

Interest in liquid alternatives cooled a bit last year amid a broad shift in investor...

Lifestyle

Aston Martin Returns To Debt Market As DB11 Drives Turnaround

Mar 31 2017 | 5:21pm ET

James Bond’s preferred carmaker is returning to the public debt markets for the...

Guest Contributor

Debunking Conventional Investment Wisdom (Part II)

Apr 17 2017 | 5:56pm ET

The alternative investment industry is currently replete with buzzwords around data...

 

From the current issue of