Merrill Lynch Must Pay $132 Million
WASHINGTON (CN) - Merrill Lynch will pay $132 million to settle charges of misrepresenting two collateralized debt obligations it structured and sold, and kept inaccurate records on a third CDO, the SEC said.
The collateral for all three CDOs was primarily credit default swaps based on residential mortgage-backed securities, the SEC said in its cease-and-desist order.
The CDOs were called Octans I, Norma CDO I, and Auriga CDO. The three CDOs were each valued at $1.5 billion.
Merrill Lynch Pierce Fenner & Smith "failed to inform investors in Octans I and Norma that an undisclosed third party named Magnetar Capital LLC (together with affiliates, 'Magnetar') - a hedge fund firm that bought the equity in the transactions but whose interests were not necessarily the same as those of the CDOs' other investors - had rights relating to, and exercised significant influence over, the selection of the CDOs' collateral," the SEC says in its 22-page order.
Merrill Lynch agreed to disgorge $56.3 million, pay as much again as a penalty, and pay $19.3 million in interest.
As is customary with the SEC it did not have to admit that it did anything wrong, but it promised not to do it again.