SEC Investigating Deal Between JPMorgan and Hedge Fund Magnetar

ProPublica ^ | 11/2/10 | Jesse Eisinger and Jake Bernstein

[FromLori]

The Securities and Exchange Commission is investigating whether JPMorgan Chase allowed a hedge fund to improperly select assets for a $1.1 billion deal backed by subprime mortgages, according to people familiar with the probe.

Called "Squared" and completed in May 2007, the deal was a collateralized debt obligation, or CDO, made up of pieces of other CDOs. The hedge fund, Magnetar Capital, based in Evanston, Ill., purchased the riskiest slice of Squared as part of a strategy to bet against the mortgage market.

As we reported in April, together with Chicago Public Radio’s This American Life and NPR's Planet Money, Magnetar often purchased the riskiest portion of CDOs, enabling the banks to complete the deals. Magnetar also frequently bet against those same CDOs, using side bets. Magnetar's purchases ultimately spawned at least $40 billion worth of risky CDOs in 2006 and 2007.

[FromLori]

Related story

JPMorgan in SEC subprime probe

http://finance.fortune.cnn.com/2010/11/01/jpmorgan-in-sec-subprime-probe/

[tired1]

I have a feeling that after yesterday, all hell is going to break loose in a mad dash to the bottom. Two years to trash this country but good.

Buy some silver.

[FromLori]

I have the same feeling.

[SunkenCiv]

Thanks FromLori.