Tuesday, June 21, 2011

J.P. Morgan to Pay $153.6 Million to Settle SEC Charges

The SEC announced that J.P. Morgan Securities LLC will pay $153.6 million to settle charges that it misled investors in a complex mortgage securities transaction just as the housing market was starting to plummet. Under the settlement, harmed investors will receive all of their money back.

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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