SEC Issues More Fines Over Magnetar Deals – and Appears to Move on
by Jake Bernstein and Jesse Eisinger
ProPublica, Dec. 12, 2013, 5:38 p.m.
Five years after the financial crisis, the Securities and Exchange Commission appears to be wrapping up its investigation into more than $40 billion worth of controversial mortgage deals that helped turn the financial crisis into the worst economic collapse since the Great Depression. Today, the agency announced fines against Merrill Lynch for its role in sponsoring three of the securities with a total value of $4.5 billion.
Merrill, which is now owned by Bank of America, agreed to pay a fine of $131 million, but did not admit wrongdoing in the deals, which were created at the behest of an Illinois-based hedge fund called Magnetar.
As ProPublica detailed in 2010, Magnetar worked with investment banks to build CDOs that the hedge fund also bet against. Magnetar would buy the riskiest part of the CDO, which gave it influence in picking which bonds would be included in the CDO. In turn, the hedge fund pushed riskier bonds that would make the investment more likely to fail.
The fines against Merrill are the just the latest in a long series of Magnetar-related SEC settlements, now totaling more than $435 million.
“We are pleased to resolve this matter, which pre-dated Bank of America's acquisition of Merrill Lynch,” said William Halldin, a spokesman for the bank.
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