SEC Warns Top Banker of Charges Over Magnetar Deal


by Cora Currier

ProPublica, Feb. 21, 2012, 1:49 p.m

According to The Wall Street Journal, the Securities and Exchange Commission has warned a top banker that it may bring civil charges against him for his role in creating a risky collateralized debt obligation, or CDO, that exploded spectacularly as the housing market crashed. It's the first public evidence that the SEC is considering charges against a top banking executive involved in CDOs, which fueled the financial crisis.

The CDO, from the end days of the boom in 2007, was one of dozens that had been created with the help of the hedge fund Magnetar. As we reported with This American Life and NPR, Magnetar often pushed for riskier assets to be included in CDOs, and placed bets against many of the same investments so that it would profit if those risky assets went sour. (Magnetar has never been charged with any wrongdoing, and has always maintained that it did not have a strategy to bet against the housing market.)

Alexander Rekeda, the banker warned by the SEC, helped create a $1.6 billion CDO called Delphinus CDO 2007-1 for the Japanese bank Mizuho. Investigators allege that investors were not told Magnetar stood to profit if the investments failed. (Here's the pitchbook for Delphinus.)

In a related matter, the Financial Industry Regulatory Authority, an independent Wall Street watchdog, has made a preliminary recommendation that Rekeda be disciplined for "alleged misrepresentations in the sale of" another type of security -- we have the details here.

Delphinus is not the first deal involving Mizuho and Rekeda that the SEC has looked into. As The Journal reported last year, the agency has been investigating a CDO called Tigris that Magnetar created with Mizuho. That CDO was a collection of the riskiest bits of other CDOs — as we described it, they were "bundling up the dregs of a CDO," a "rare, if not unprecedented" strategy. The Tigris deal has not yet resulted in charges.

We've reached out to Rekeda, who no longer works at Mizuho, but have yet to hear back. A Mizuho spokesman told The Wall Street Journal that it "has been asked by the SEC to provide related documents and information, and it's currently dealing with it." (We also have reached out to Mizuho.)

The warning sent to Rekeda, called a Wells notice, says that the SEC has made a "preliminary determination … to recommend charges based on alleged misrepresentations in connection with the structuring of a CDO."

As we noted last fall, the SEC has also warned the ratings agency Standard & Poor's that it also may face civil charges in connection with the Delphinus CDO. Standard & Poor's abruptly downgraded Delphinus just a few months after the security was issued and received a top rating.

Other banks have been charged by the SEC and settled allegations involving CDOs. In 2010, Goldman Sachs settled with the SEC for more than $500 million. In June, J.P. Morgan agreed to pay $153 million, and in October, Citigroup reached a $285 million settlement.

Add comment

Security code

Please Support Our Advertisers


Celebration on Ice

Suffern High School 2012 New York State Champions celebrate their win in Utica. See details

Suffern's Steve Scholer puts S

Air Redgate takes off. Photo Album 1 Photo Album 2 --Note: Due to issues uploading with Facebook, additional photos will be available later in the day/ What started out all wrong, ended up all See details

West Point

Welcome to West Point.  A West Point player welcomes Brown University's goaltender to the Academy. See details

Section Championship

Suffern captain John Redgate finds the back of the net during the section championship game against ETB at West Point. See details

NY Giants Training Facility

A huge mural that lines one of the hallways in the 2012 Super Bowl champion New York Giants training facility also known as the Timex Performance Center. See details

Boulders Scoreboard

The high tech scoreboard at Provident Bank Park, home of the Rockland Boulders. See details


The Rockland Boulder's Ryan Mollica waits to make the tag at third base. See details


Latest comments