As the market was collapsing, J.P. Morgan Securities continue to convince clients to invest in a complicated investment made up of credit-default swaps, even though the underlying investments were selected by a hedge fund, Magnetar Capital LLC, that would benefit from seeing the investment fail. Allegedly, J.P. Morgan was knowingly selling an investment designed to tank. Now the Securities and Exchange Commission (SEC) is requiring J.P. Morgan Chase to compensate the investors who were misled through this investment.
Most investors who look into complicated investments like collateralized debt obligations, like this one, are not your typical individual investors interested in growing a nest egg for retirement. These are often large organizations who pay investment professionals to manage significant portfolios. These are institutional investors who look for alternative investments. Three of the dozen institutional investors who lost nearly their entire investment are Thrivent Financial for Lutherans, Security Benefit Corporation, and General Motors Asset Management. A good portion of the $153.6 million settlement will go towards paying these investors back for their losses due to investing in this CDO.
The SEC is also targeting the executive at an advisory firm who had oversight for the marketing of this investment, Edward S. Steffelin. He’ll be required to give up any compensation he received for the success of this scheme — remember, the investment succeeded for Magnetar’s investors when the CDO investment failed. It’s odd that the SEC didn’t identify any parties responsible at J.P. Morgan Chase.
While the proliferation of complex investments like this CDO and selling tactics like this uncovered by the SEC helped pave the way for the financial collapse of 2008 and 2009, most affected by the onslaught will not see any justice like this. The recession that touched every American invested in the stock market. Some of the investors who at the time were willing to take on risk may have lost everything, just like these institutional investors. But these investors, like average investors who lost some value in stocks or in real estate, are too far down the line of importance to receive any type of consideration for losses.
Securities and Exchange Commission
Published or updated June 21, 2011. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @flexo on Twitter and visit our Facebook page for more updates.
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Luke Landes founded Consumerism Commentary in 2003 and has been building online communities since 1990. Luke, also known as Flexo, has contributed to PC World Magazine, US News, Forbes, and other publications. 
{ 8 comments… read them below or add one }
not surprising at all and unfortunately these banks are only going to get bigger with another financial collapse inevitable.
It is hard to get it through our noggins that most investments carry a risk—–especially when ultra safe ones are paying less than 1%. I guess there is a lesson to be learned here.
Why am I not surprised that JP Morgan is involved with this?
I get the feeling that fining JPM $153 million is equivalent to fining a guy like me $153.00. Heh.
it is probably even worse than you feel. more like a 15.30…
J.P Morgan has been heavily fined in the past. They, along with others paid billions in fines for helping Enron cook their books. Unfortunately this Government fine (the part not going to investors) is like me fining my wife – we’re in it together so “what’s the point”. In 2008 JPM bought Bears Stern using a $1.15 billion dollar subordinated loan and a $28.82 billion dollar loan from the NY Fed. Translation: The U.S. Taxpayer, you and me, assumed 96% of the risk involved in that transaction – and we haven’t recovered it yet. Buying a security and then buying another that would profit if the first one fails is called a hedge – and is legitimate. Selling the first to someone as a great investment, while betting against it with another, is, in my opinion, fraud. So I guess it good to see some of those who bought upon JPM recommendation get a little back.
The hardest part to believe would be that JP Morgan was the only one involved in these practices.
i would think that you are right. hopefully, it is only a matter of time for more to be resolved.