Tag Archives: illinois

SEC’s Hunt for Crisis-Era Wrongdoing Loses Steam

SEC’s Hunt for Crisis-Era Wrongdoing Loses Steam

Securities and Exchange Commission enforcement officials have decided not to recommend filing civil charges against hedge-fund firm Magnetar Capital LLC, which teamed up with Wall Street firms to create mortgage securities that suffered billions of dollars in losses during the financial crisis, according to people familiar with the situation.

The decision is a sign the SEC’s investigations into whether companies or individuals broke the law with their conduct ahead of the crisis are running out of gas. Despite last week’s courtroom victory in a civil trial against former Goldman Sachs Group Inc.GS -1.13% trader Fabrice Tourre over his role in a deal called Abacus 2007-AC1, securities regulators are quietly winding down some of their highest-profile investigations related to the crisis, these people said.

Magnetar is an Illinois hedge-fund firm that was started in 2005 and named after a type of neutron star, a remnant of a collapsed sun. The firm worked closely with some of the biggest banks and securities firms to create dozens of mortgage-bond deals called collateralized debt obligations.

The securities were linked to pools of mortgages and other debts and sold in slices of varying risk and return. Magnetar helped fuel the CDO machine by purchasing the riskiest portions of certain deals while at the same time betting some CDOs would decline in value.

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SEC Says Illinois Hedge Fund Manager Hid Major Losses During Financial Crisis

In suits filed in Illinois, the SEC and the Commodity Futures Trading Commission took emergency enforcement action against hedge fund manager Nikolai Battoo for allegedly exaggerating the value of the assets he managed and concealing major losses from investors during the 2008 financial crisis.

Alex Akesson, editor of Hedgeco.net reports that the SEC alleges that Nikolai Battoo claims to manage $1.5 billion on behalf of investors around the world, including at least $100 million for U.S.-based investors. But contrary to Battoo’s proclaimed track record of exceptional risk-adjusted returns for his investors, he actually suffered major losses in 2008 due to his investments in the Bernard Madoff Ponzi scheme and a failed derivative investment program.

“Rather than admit the losses to investors,” The SEC said, “Battoo has been overstating the value of his investments in a variety of ways. By boasting benchmark-beating returns, he has continued to attract new investors. However, during the past several months, investors have requested redemptions on their investments with Battoo. Instead of paying them, Battoo has provided a series of excuses ranging from the MF Global collapse to others placing a hold on investors’ money due to government investigations.”