Friday, December 13, 2013

Charlotte investment managers charged in CDO case

The managing directors of a Charlotte investment advisory firm have been charged by the Securities and Exchange Commission for their role in a complex investment that authorities say was put together with significant conflicts of interest, the regulator announced.

Scott H. Shannon and Joseph G. Parish III will pay $472,000 and be forced to leave the industry. They accepted the settlement but did not admit to or deny the charges.

The two men managed NIR Capital Management LLC, were responsible for putting together the assets that would back a collateralized debt obligation marketed by Merrill Lynch in 2006 and 2007. The SEC says they allowed hedge fund Magnetar Capital LLC, an investor in the CDOs, to influence what assets went into them. Magnetar would later hedge its risk against the securities by shorting them.

In once case, Shannon called a mortgage-backed security included in the instrument "a real stinker," the SEC said. 

“Shannon and Parish could not serve two masters,” SEC enforcement division co-director George S. Canellos said in a statement. “They allowed Magnetar to influence asset selection and abdicated their duty to pick only the assets they believed were best for their client.”

The SEC also charged Merrill Lynch, which structured and marketed the securities. The investment bank, now owned by Bank of America, agreed to pay $132 million to resolve claims that it mislead potential investors about the independence of the people deciding what made up the CDOs.

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