The hedge fund Magnetar helped create billions of dollars' worth of risky deals called collateralized debt obligations, many of which failed spectacularly in the financial crisis. Magnetar, meanwhile, had taken positions that allowed the firm to profit when many of those same CDOs collapsed. Since ProPublica reported on Magnetar's dealings two years ago, there's been a long line of investigations and settlements related to the hedge fund.
Magnetar itself has never been charged with wrongdoing, and it has always maintained that it did not have a strategy to bet against CDOs they were involved with. But today's Wall Street Journal reported that Magnetar is indeed under investigation by the SEC.
Magnetar itself has never been charged with wrongdoing, and it has always maintained that it did not have a strategy to bet against CDOs they were involved with. But today's Wall Street Journal reported that Magnetar is indeed under investigation by the SEC.
But the Journal reports that the SEC's investigation is looking into whether Magnetar took such a prominent role in structuring some of the CDOs in which it invested that it became a de facto collateral manager, responsible for selecting the assets in a CDO. If that were the case, Magnetar might have some responsibility to all the investors in the deal.
The SEC has been circling around the Magnetar deals for some time, hitting some of the investment banks and managers involved. Here's a roundup of all the charges, settlements, and investigations that we know of stemming from Magnetar deals:
Settled:
June 2011: JPMorgan agrees to pay $153.6 million to the SEC to settle allegations that it misled investors by not telling them that Magnetar was involved in the creation of a CDO called Squared CDO 2007-1. In reaching the settlement, JP Morgan did not admit or deny the SEC's allegations.
February 2012: State Street Global Advisors pays the state of Massachusetts $5 million to settle allegations that it did not disclose to investors that Magnetar was involved in constructing the CDO Carina CDO Ltd. State Street did not admit or deny Massachusetts' allegations.
Charged:
June 2011: The SEC files a complaint against manager Edward Steffelin for his involvement in structuring JPMorgan's Squared CDO 2007. In October 2011, a judge threw out part of the SEC's case, ruling that Steffelin had not engaged in "fraud or deceit." Other charges are still pending. A lawyer for Steffelin declined to comment on an ongoing case.
Under investigation:
June 2011: The SEC is reportedly investigating Merrill Lynch and the firm NIR Capital Management over the Magnetar CDO called Norma.
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