CDO Deals Become Target Of SEC Probe
The U.S. Securities and Exchange commission (SEC) has widened its investigation into collateralized debt obligations (CDOs) which were tied to subprime mortgages, according to the Wall Street Journal. According to the article, the SEC is pushing for a deal of over $200 million to settle with Citigroup Incorporated. This is on the heels of a $1 billion deal with Citi to settle a mortgage bond deal named Class V Funding III, which Citigroup created back in 2007. There seems to be more and more evidence that Wall Street knowingly defrauded investors by selling CDOs to investors that were built to fail, benefiting business partners of the firms that peddled the CDOs at the expense of individual investor clients.
The SEC is looking into Mizuho Financial Group for its role in a mortgage bond deal called Tigris, which was a CDO built by Magnetar Capital LLC. Magnetar helped pick the assets of a $1.1 billion deal called Squared that was peddled by JP Morgan Chase & Company. JP Morgan entered into a settlement with the SEC recently for $153.6 million to put to rest civil charges related to the Squared deal. In 2010, Goldman Sachs paid a record $550 million to settle civil charges related to a CDO deal named Abacus 2007-ACL.
Finally, in yet another CDO investigation by the SEC, it is going forward with its investigation against Stifel Financial for its role in misleading five Wisconsin school districts about CDOs, by not advising them of the risks associated with the investments it sold to the districts in 2006. Another example is the Goldman/Paulson deal. In that case Paulson & Company Incorporated created Abacus, a CDO that was made to fail so that Paulson could make money from the failure. Goldman Sachs, the peddler of the Abacus CDO to retail investors entered into a dealt with the SEC to settle charges that it misled investors by failing to disclose Paulson’s role in the investment.