SEC Probing JPMorgan CDOs: Report
Updated with JPMorgan confirmation that it's received inquiries from the SEC..
NEW YORK (
) --
JPMorgan Chase
(JPM) - Get Report
shares put on the brakes after
ProPublica
reported that the
Securities and Exchange Commission
was investigating the bank over collateralized debt obligations sold to one hedge fund in 2007.
According to
ProPublica
, which cited people familiar with the investigation, JPMorgan allegedly allowed Magnetar Capital of Evanston, Ill., to "improperly select assets for a $1.1 billion deal backed by subprime mortgages."
The deal, named "Squared" was completed in May 2007. The CDOs were compiled from pieces of other CDOs. Magnetar apparently acquired some of the riskiest slices of the deal as part of a greater strategy to place bets against the mortgage market, ProPublica says.
JPMorgan confirmed late Monday it has received inquiries from the SEC in a statement emailed to
TheStreet
.
"We, like other firms, have received inquiries from the SEC related to collateralized debt obligations," the statement reads. "We are cooperating fully with these inquiries."
Magnetar was apparently known to purchase the riskiest parts of CDOs and then bet against them through side bets, the article says.
The SEC is reportedly looking into whether JPMorgan "adequately disclosed" to potential investors that the hedge fund played a role in choosing the securities that went into the CDO, while "also betting against segments of the deal," ProPublica says. Apparently the prospectus has generic language warning of conflicts of interest between some investors, the article says.
The SEC's investigation is likely to strike a chord, since
Goldman Sachs (GS) - Get Report
settled with the SEC by paying a $550 million fine as a result of similar charges this past spring.
JPMorgan shares were most recently falling roughly 0.8% to $37.31, shortly after the
ProPublica
report came out.
To contact the writer of this article, click here:
Laurie Kulikowski
.
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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.
