SEC eyeing JPMorgan, hedge fund roles

AP News
Posted: Nov 01, 2010 7:23 PM
SEC eyeing JPMorgan, hedge fund roles

Wall Street bank JPMorgan Chase & Co. confirmed Monday that federal regulators are investigating whether it allowed a hedge fund to improperly choose assets for a $1.1 billion mortgage securities deal.

A JPMorgan spokeswoman said the bank was "cooperating fully with the inquiry" by the Securities and Exchange Commission.

The SEC inquiry was reported earlier in the day by ProPublica, an independent investigative news organization. It reported last spring that the hedge fund, Magnetar Capital, bought the riskiest portions of the $1.1 billion deal as a way to bet against the mortgage market.

SEC spokesman John Nester declined comment. The agency has been investigating broadly the actions of Wall Street firms related to mortgage securities in the run-up to the financial crisis that struck two years ago.

"We, like other firms, have received an inquiry from the SEC" related to dealings in complex mortgage securities, JPMorgan spokeswoman Jennifer Zuccarelli said.

Of all the investors in the May 2007 "Squared" deal involving Magnetar, JPMorgan was by far the biggest loser, losing about $880 million, ProPublica reported.

In the summer, Wall Street powerhouse Goldman Sachs & Co. agreed to pay $550 million to settle civil fraud charges of misleading buyers of mortgage-related investments _ one of the biggest fines in the SEC's history.

The agency had accused Goldman of selling mortgage investments without telling buyers that the securities had been crafted with input from a hedge fund client, Paulson & Co., that was betting they would fail. The securities cost investors close to $1 billion while helping Paulson & Co. capitalize on the housing bust, the SEC said.