U.S. regulators notified a former JPMorgan Chase & Co. (JPM) executive whose unit packaged mortgage- linked investments that he may be sued for his role in selling the securities as the housing crisis worsened in 2007.
Michael Llodra, who was global head of structured-product collateralized debt obligations when he left JPMorgan, received a Wells notice from the Securities and Exchange Commission on Jan. 4 saying investigators planned to pursue civil claims against him related to the sale of a 2007 product, according to Llodra’s broker registration filings. The SEC also gave a Wells notice on Jan. 14 to Edward Steffelin, a former executive at a firm that helped manage JPMorgan’s 2007 “Squared” CDO, his brokerage records show.
The SEC has been probing whether JPMorgan, the second biggest U.S. bank by assets, and Steffelin’s former firm, GSC Group, misled investors about hedge-fund Magnetar Capital LLC’s possible role in selecting underlying assets in the $1.1 billion Squared deal, according to a person briefed on the matter who spoke on condition of anonymity because the probe isn’t public.
Magnetar has said it bought the junior-most slice of the Squared CDO as part of its strategy of investing in some mortgage-linked securities while betting against other housing debt, sometimes including bonds from the same deals. CDOs package assets such as mortgage bonds and buyout loans into new securities with varying risks.
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