Investigative nonprofit website ProPublica reports today that obfuscatory for-profit hedge fund Magnetar has attracted the attention of the Securities and Exchange Commission for its dealings in collateralized debt obligations.
The investigation echoes the SEC’s suit earlier this year against investment bank Goldman Sachs. In April, the SEC charged Goldman with misleading investors in the creation of a CDO called Abacus 2007-AC1. The bank did not disclose the role of a hedge fund, Paulson & Co., that helped put together the deal as part of its bet against housing. In June, Goldman paid a $550 million fine to settle the case . The agency didn’t charge Paulson with any wrongdoing. In June, the Wall Street Journal reported  that the agency had stepped up its probes of Magnetar’s deals.
Avid readers of ProPublica will remember Magnetar from an April investigative piece that concluded that through shady CDO dealings, Magnetar played a substantial role in perpetuating the housing bubble.
It remains to be seen what will come of the SEC investigation, but perhaps it’s worth noting that the Goldman settlement of $550 million earlier this year constituted the largest SEC fine against a financial firm — ever.
mtaylor [at] observer.com | @mbrookstaylor