The Securities and Exchange Commission (SEC) is investigating a $1.1-billion deal sold by JPMorgan Chase & Co, as part of a wider probe by the regulator into complex mortgage securities at the heart of the financial crisis, says a media report today.
The SEC is looking at the role played by Magnetar Capital, an Illinois-based hedge fund, in the 'squared' subprime mortgage-linked security, known as a collateralised debt obligation (CDO), that was sold by JPMorgan Chase in early 2007, The Wall Street Journal reported citing to people familiar with the matter.
The probe, which was reported by ProPublica, is one element in a wider informal investigation by the regulator into several banks' sales of CDOs.
JPMorgan Chase, which retained a significant stake in the squared CDO, lost almost $900 million on the deal, which was more than the combined losses of all its clients on the deal, the daily reported.
"We, like other firms, have received an enquiry from the SEC related to our collateralised debt obligation business," the report quoted a JPMorgan Chase official as saying. "We are cooperating fully with the inquiry."
The SEC is investigating a series of CDOs and the Wall Street banks involved. These probes follow a suit the regulator filed against Goldman Sachs alleging it misled investors about who was betting on the other side of a CDO named Abacus.
Goldman, which had lost about $90 million on its deal, settled the suit for $550 million this year.