In settling the SEC’s fraud charges against the firm, J.P. Morgan also agreed to improve the way it reviews and approves mortgage securities transactions.
The SEC alleges that J.P. Morgan structured and marketed a synthetic collateralized debt obligation (CDO) without informing investors that a hedge fund helped select the assets in the CDO portfolio and had a short position in more than half of those assets. As a result, the hedge fund was poised to benefit if the CDO assets it was selecting for the portfolio defaulted.
The SEC separately charged Edward S. Steffelin, who headed the team at an investment advisory firm that the deal’s marketing materials misleadingly represented had selected the CDO’s portfolio.
It appears that the SEC did not charge any individuals at JP Morgan Securities who were involved. Bloomberg reported back in April that an executive had received a Wells Notice related to the investigation, but our search was unable to find any case or settlement against him.
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