Massachusetts' Galvin Fines State Street $5 Million In CDO Case
February 28 2012 - 11:55AM
Dow Jones News
Massachusetts's securities regulator fined State Street (STT) $5
million for allegedly failing to disclose a hedge fund's
involvement in a $1.56 billion deal that lost $450 million for
investors.
Secretary of the Commonwealth William Galvin said Tuesday that
State Street, which was investment manager on the transaction,
didn't tell investors that a hedge fund called Magnetar helped
create the underlying portfolio and was taking a short position
against all or some of it.
The deal was a collateralized debt obligation called Carina CDO
Ltd. Deutsche Bank (DB) approached State Street in 2006, offering a
$3.5 million fee to it to manage the portfolio.
Galvin said State Street was "instrumental" in creating the
marketing materials for Carina and actively involved in meeting
investors and drumming up interest but it didn't disclose
Magnetar's involvement in recommending securities that should be
purchased by the CDO nor Magnetar's trading position betting
against it.
State Street will pay a civil penalty of $1.5 million and
disgorge $3.5 million of fees, profits and commissions. It reached
the settlement without admitting or denying the findings.
A State Street spokeswoman was not immediately available.
--By Liz Moyer, Dow Jones Newswires; 212-416-2512;
liz.moyer@dowjones.com
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