JPMorgan Magnetar Deal Under SEC Investigation
Jesse Eisinger and Jake Bernstein, whose coverage of the Magnetar hedge fund and the big iBank CDO debacle has scooped the MSM, note that the SEC is investigating both JPM and Magnetar:
The Securities and Exchange Commission is investigating whether JPMorgan Chase allowed a hedge fund to improperly select assets for a $1.1 billion deal backed by subprime mortgages, according to people familiar with the probe.
Called “Squared” and completed in May 2007, the deal was a collateralized debt obligation, or CDO, made up of pieces of other CDOs. The hedge fund, Magnetar Capital, based in Evanston, Ill., purchased the riskiest slice of Squared as part of a strategy to bet against the mortgage market.
As we reported in April [1], together with Chicago Public Radio’s This American Life [2] and NPR’s Planet Money [3], Magnetar often purchased the riskiest portion of CDOs, enabling the banks to complete the deals. Magnetar also frequently bet against those same CDOs, using side bets. Magnetar’s purchases ultimately spawned at least $40 billion worth of risky CDOs in 2006 and 2007.
While Magnetar bought the riskiest slices, the CDOs were created and marketed by investment banks. In the case of Squared, the SEC is examining whether JPMorgan adequately disclosed to the investors it marketed Squared to that Magnetar had a role in picking the securities that went into the deal while also betting against segments of the deal. The 294-page Squared prospectus [4], which was created by JPMorgan, has generic language [5] warning that some investors and the CDO manager might have investments that conflict with the interests of other holders of the CDO. (Read the prospectus.)
The new & improved SEC seems to be pretty busy lately . . .
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Source:
SEC Investigating Deal Between JPMorgan and Hedge Fund Magnetar
Jesse Eisinger and Jake Bernstein
ProPublica, Nov. 1, 2010, 2:20 p.m.
http://www.propublica.org/article/sec-investigating-deal-between-jpmorgan-and-hedge-fund-magnetar
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November 1st, 2010 at 5:12 pm
i know i’m off-topic here, but i just have to say the following: another investigation, and another settlement without admitting guilt. what’s new?
Prof. William Black is 100% correct – until the see perp walks, until we see CEOs and billionaire-”hadgies” in handcuffs, the behavior will not change, and confidence will not return. everyone knows that.
1000 prosecutions of individuals during the “S&L crisis” and exactly one unsuccessful attempt now (2 ex-Bear fund managers) – is anyone awake on the job? Hello-o SEC, FBI, FHA….
November 1st, 2010 at 5:28 pm
If Pro Publica scooped the MSM, then Yves scooped Pro Publica.
November 1st, 2010 at 6:21 pm
Yves chapter on Magnetar is based on Pro Publica work …
I agree with b-thunder’s reference to Prof Black point about perp walks. Until there is a restoration of some sort of rule of law that prosecutes and punishes the miscreants then we will continue to see the “i will not admit nor deny” settlements which are a giant single finger salute, a big FU, to justice.
November 1st, 2010 at 6:41 pm
What concerns me is that this new found SEC vigilance is temporary. Congress refused to allow the SEC to self-fund, which ultimately limits their ability to police and enforce effectively.
November 1st, 2010 at 6:56 pm
Secondly as has been discussed earlier, there was information the underwriters had from firms such as Clayton holdings which the purchasers of Magnetar did not have access to.
If JP Morgan did what Goldman was accused of and helped one firm more than the other then they should be held accountable. Doing the very least that the law requires with regards to the creation of an offering memorandum is not sufficient. Wall Street needs to understand that acting as a placement agent means assuming more responsibility than they currently own up to.
Not everything is on the loan tapes.
November 1st, 2010 at 7:21 pm
Putting white collar scam artists in prison would serve no socially redeeming purpose. Think the families that would be needlessly disrupted. Both liberals and conservatives understand that, which goes a long way towards justifying the Tea Party.
—
BR: Heh heh very funny
Wait — you are kidding, right?
November 1st, 2010 at 7:47 pm
Think the families that would be needlessly disrupted.
You mean disrupted by spontaneously leaving the dinner table and cheering at the television?
November 1st, 2010 at 8:13 pm
Sadly, CNBC’s “Fast Money” tonight seemed to feel the SEC investigation of JP Morgan would go Nowhere..
I, guess, on the eve of an election that was a “safe” response…but, OTOH… if traders no longer feel SEC is capable of any REAL ACTION…then they feel safe to pile into JP Morgan at a low for an “easy trade.”
None of us must trust ANYTHING anymore if Traders don’t even feel a “caution” about trading in stocks under “SEC Investigations!”
How LOW can our CREDIBILITY for “RULE OF LAW” go these days …if traders fount News…and still make profit..or “hope to make profit” based on ineffictiveness of SEC and other Regulation?
Is this a collapse of TRUST in our Legal System? Or, worse!
“
November 1st, 2010 at 9:11 pm
i am losing interest in the legal points.
the amazing part is
this cannot make sense for magnetar..
unless they like the odds of the whole thing massively self destructing so much that they are willing to eat the 100% liklihood of equity tranche losses — think of them as bait.–because they plan onmaking a multiple?
these bastards are smart enough–but i cant bring myself to own anything secret.
November 1st, 2010 at 10:14 pm
The Fabulous Fab — he’s like Elvis: He’s EVERYWHERE.
SO let me guess: JPM tagged with a $500mil fine, no admission of guilt. But because Jamie saved Hank Paulsen’s ass by eating Bear’s crappy paper, they get the fine reduced by half, with the remainder paid to Uncle Sam in what’s left of Bear’s crappy paper.
Good evening Mr Taxpayer. Tonight’s special is $250 million in garbage MBS. It comes with a sprinkling hubris and a side of smirking Jamie string po-tah-toes. And we have a fine pinot gris from the Magenter vineyards — by the glass only as this classic is in short supply.
Phew.
.
November 2nd, 2010 at 12:50 pm
Democrat, Republican or Tea Party, who can better play the role of being a flunky for corporatism? What could be a game changer? “it took at least hundreds of thousands of years and, perhaps, 4m years for human and chimpanzee ancestors to stop interbreeding after they began to be differentiated.” Substitute the party names for human and chimpanzee and be patient.