BofA Settles Merrill-Magnetar CDO Case

Dec 13 2013 | 6:30pm ET

Bank of America will pay $131.8 million to settle allegations that it misled investors in three collateralized debt obligations hedge fund Magnetar Capital had a hand in creating.

The Securities and Exchange Commission alleged that Merrill Lynch, which BofA acquired in 2008, failed to tell investors that Magnetar had a role in selecting the securities that went into the CDOs, and that the hedge fund was shorting them. Magnetar was not charged with any wrongdoing, in a statement, the Evanston, Ill.-based firm said it was "happy to report that the SEC has issued a closing letter to Magnetar, which confirms that the staff has completed its investigation as to Magnetar's activities regarding the relevant CDOs and will not recommend any action against the firm, its funds or any of its personnel."

For its part, BofA said it was simply "pleased to resolve this matter."

The CDOs is question, Norma and Octans 1, were issued in 2006 and 2007, respectively, and were among billions of dollars worth of CDOs that Magnetar was involved in creating prior to the financial crisis. The BofA deal also covers a CDO called Auriga that Magnetar was involved with; the bank was cited for delaying the recording of some trades in that case.

Magnetar may have avoided trouble with the SEC, but one hedge fund did not: NIR Group, which served as the collateral manager of the Norma CDO, saw two of its managing partners, Scott Shannon and Joseph Parish, settle for a total of $472,000. NIR has since gone out of business.


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