Wednesday, June 22, 2011

EDT J.P. Morgan fined by SEC over mortgage securities Magnetar hedge fund helped select assets in synthetic CDO

WASHINGTON (MarketWatch) — J.P. Morgan Chase & Co. will pay $154 million to settle Securities and Exchange Commission charges that it misled investors in a complex mortgage-securities transaction at the onset of the collapse of the housing market, the agency said Tuesday.

The lawsuit, similar to the $550 million charge levied by the SEC against Goldman Sachs Group Inc., shows the regulator's focus on this particular area of investment banking.

The commission alleges that J.P. Morgan JPM +1.06%  structured and marketed a so-called synthetic collateralized debt obligation without informing investors that a hedge fund, Magnetar Capital LLC, helped select the subprime assets in the CDO portfolio and had a short position in more than half of those assets. Read the SEC's statement on the settlement

Synthetic CDOs essentially are bets on the performance of real mortgage securities.

"J.P. Morgan marketed highly complex CDO investments to investors with promises that the mortgage assets underlying the CDO would be selected by an independent manager looking out for investor interests," SEC Enforcement Chief Robert Khuzami said Tuesday.

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