A judgment has finally been handed down in the Magnetar case, which is almost identical to the Abacus case that ended up costing Goldman Sachs $550 million in fines. From Bloomberg:
JPMorgan agreed to pay $153.6 million to end a Securities and Exchange Commission suit. The SEC alleged that the New York- based bank failed to tell investors in 2007 that a hedge fund helped pick, and bet against, underlying securities in the collateralized debt obligation they purchased. In July, Goldman Sachs paid a record $550 million for failing to inform clients in 2007 that it allowed a hedge fund that also bet against housing to help formulate the CDOs.
“It’s the same general allegation of wrongdoing,” Robert Khuzami, enforcement chief of the SEC, said yesterday in a Bloomberg Television interview. “The message in both cases is if you engage in this kind of wrongdoing, if you mislead investors, you’re going to pay a fine.”
The piece notes that the victims in the Chase case were much more sympathetic than the ones in the Goldman case. In Abacus, Goldman helped a hedge-fund creep named John Paulson bleed a pair of sophisticated European banks for almost a billion dollars. But in the Chase case:
The customers misled by the two banks also differed, according to the SEC suits. JPMorgan sold about $150 million of notes in the CDO, known as Squared, to about 15 firms including a not-for-profit Lutheran insurer, Thrivent Financial, and a New York City-based manager of General Motors Co. pensions.
So, a Christian non-profit and a pension fund for auto workers are the suckers here. $153 million seems a little on the low side, especially considering the evidence in Magnetar was at least as strong as it was in Abacus, but at least there was a fine.
But here’s what I’m interested in: is SEC enforcement chief Robert Khuzami going to take on Deutsche Bank for doing the same thing? I’m wondering because Khuzami was a general counsel for Deutsche when the bank reportedly engaged in deals so exactly like the Abacus trade, they also involved the same hedge fund predator (John Paulson) and the same customer/mark (the German bank IKB).