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.
Published or updated June 21, 2011.