Back in March, we heard that the hedge fund Magnetar packaged CDOs with the riskiest assets they could find.Now the SEC is investigating whether or not JPMorgan did anything wrong by allegedly allowing Magnetar to both pick the assets and bet against it.
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.
Magnetar is saying pretty much the same thing John Paulson and Goldman said about ABACUS. The CDO manager picked the assets, not us.
Magnetar said that the fund “did not at any time require or expect any specific assets to be purchased into the Squared transaction.” The fund said GSC, the CDO manager, “at all times exercised its own discretion and judgment regarding the characteristics and appropriateness of each of the assets selected for inclusion in Squared.”
But there might be one key difference that could separate the SEC’s investigation of JPMorgan from that of Goldman. JPMorgcan lost money on it.
JPMorgan Chase, which kept the large, supposedly safe top slices of Squared on its books, without hedging itself, lost about $880 million on the deal.
Magnetar earned $290 million, apparently.