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Report: SEC Probing JPMorgan CDO Disclosure

Monday, 01 Nov 2010 04:40 PM

U.S. securities regulators are investigating whether JPMorgan Chase & Co adequately disclosed that a hedge fund helped select assets for a $1.1 billion package of subprime mortgages while also betting against portions of the deal, investigative journalism website ProPublica reported.

ProPublica, citing people familiar with the probe, said the hedge fund, Magnetar, bought the riskiest piece of the package, in a bet against the mortgage market.

The 2007 deal, called "Squared," was a collateralized debt obligation, or CDO, made up of pieces of other CDOs, ProPublica said. Those portions of CDOs were in turn backed by mortgages.

ProPublica said Magnetar's strategy was often to purchase the riskiest parts of such deals and then make side bets against the deals.

The SEC's investigation is part of its wider probe of the CDO market, and it is not clear how far the investigation has progressed, according to ProPublica.

The investigation comes after the SEC earlier this year sued JPMorgan rival Goldman Sachs Group over a similar CDO transaction.

The SEC accused Goldman Sachs and one of its vice presidents of putting together a CDO without disclosing that hedge fund Paulson & Co helped choose the underlying assets and bet against them.

JPMorgan shares closed down 0.55 percent at $37.42.

A JPMorgan spokesman declined to comment. SEC spokesman John Nester had no comment. A spokesman for Magnetar could not immediately be reached.  

© 2017 Thomson/Reuters. All rights reserved.

   
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U.S. securities regulators are investigating whether JPMorgan Chase Co adequately disclosed that a hedge fund helped select assets for a $1.1 billion package of subprime mortgages while also betting against portions of the deal, investigative journalism website ProPublica...
jpmorgan,cdos,fund
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2010-40-01
Monday, 01 Nov 2010 04:40 PM
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