After SEC Settlement with JPMorgan, Will Other Banks Pay Too? - ProPublica
In the SEC’s complaint [PDF] released yesterday it accused JPMorgan of misleading investors in a complex mortgage deal it peddled in 2007. Neither the bank, nor the manager of the deal had disclosed to the investors that Magnetar not only helped choose the assets in the deal, called “Squared,” but also bet against much of the deal.
Magnetar participated in at least 28 similar deals, worth more than $40 billion. Other hedge funds, such as Paulson & Co., asked Wall Street banks to design billions worth of other similar deals, crucial aspects of which were not clearly disclosed to investors.
While the SEC may yet reach a few more settlements over similar conduct at other banks, it’s likely that only a fraction of those responsible on Wall Street will be caught in the dragnet.
“It is impossible for the SEC to sweep the Street on every one of these bum deals,” says Charles Landy, a partner at Pillsbury who was a former attorney in the SEC’s enforcement division.
The largest stumbling block may be lack of resources. The SEC spent two years investigating Squared. A special group within the agency that helps the enforcement staff examine these complex securities was formed in January 2010, and wasn’t fully staffed until May of that year. To cut through the complexity of the deals and the legal defenses of the banks takes time and knowledge.