JPMorgan Securities has agreed to a settlement with the U.S. Securities and Exchange Commission (SEC) concerning its 2007 sale of CDOs called Squared CDO 2007-1, according to a press release from the firm.
As part of the deal, JPMorgan agreed to SEC's filing of a complaint, but in doing so did not confirm or deny the accusations. The release also stated that the firm has agreed to pay $159 million in penalties resulting from the CDO sale.
The agreement is still subject to court approval.
According to the release, the SEC asserted in its filing that JPMorgan Securities failed to fully disclose to investors the nature of involvement of Magnetar Capital in the collateral selection process of Squared. Ultimately, the firm lost approximately $900 million on the deal.
However, JPMorgan did admit that a noteholder in Squared could potentially hold a short position, and that the said noteholder may act “without regard to whether any such action might have an adverse effect on the issuer, the noteholders, related reference entity or any reference obligation.”
Also included in the filing was the acknowledgement that GSC, the third-party collateral manager for the deal, was aware of Magnetar’s dual connection in the transaction as both an investor and a buyer of credit protection.
JPMorgan stated that it has not been charged by the SEC with intentional or reckless misconduct and that it is eager to “put this matter concerning certain 2007 disclosures behind us.”
While conducting an internal review of CDO transactions, JPMorgan willingly made payments worth $56 million to investors of a separate CDO deal referred to as Tahoma I.
